Euro

Rise in inflation rate

Although the rise in Malta’s inflation rate to 3.6 per cent as established by Eurostat for July has brought about a chorus of anxious signals from the economic field, a leading economist has gone even further and expressed his concern at the current deficit and debt levels which he says are unsustainable. Speaking to The Malta Independent, Professor Edward Scicluna said that since the test for the adoption of the euro will not take place now, there is still time to adjust. However, he admitted that the current inflation levels are rather worrying. “Admittedly, our latest relative inflation rate picture gives a degree of concern in view that it is brushing past the average of the three lowest euro country rates. However, two of these countries’ rates are provisional, so the jury is still out,” he said. Prof. Scicluna also noted that in July, Malta experienced a rise in its inflation rate, which was steeper than average. “What we should be asking more is how the July rate went down in neighbouring Cyprus and in all euro countries except Germany, but went up significantly in ours,” he pointed out. He also expressed concern over the sustainability of our public finances which at the end of the day will have to stand up to the test if and when the changeover to the euro comes along. “Before we start looking at these monthly figures one at a time, it must be underlined that the Maastricht examination, when it is undertaken, does not concern a particular figure at one point in time, but whole sustainability trends. In this respect, unlike certain senior government officials, I am more concerned of the deficit and debt trends than the current peaking of our inflation rate.” This paper also spoke to Alternattiva Demokratika’s spokesperson for economy and finance, Edward Fenech, who was similarly concerned about the rise in the inflation rate, saying that serious thought must now be given to alternative energy policies as the price of oil and its use by traditional energy systems were having a huge effect on the nation’s purse. “The inflation statistics published by Eurostat, in which Malta’s inflation rate up to July stood at 3.6 per cent, are indeed worrying, although not altogether surprising. The primary cause is the cost of energy that has shot up very steeply during this year. “While the government bears no responsibility for the international price of oil, it must shoulder responsibility for the inefficiencies in energy production that have exacerbated the impact of the oil price increase, as well as the complete reliance on imported oil since Malta’s use of alternative energy sources is practically nil. Alternative energy is no longer an environmental buzzword; it is an issue that has a wide-reaching economic impact.” Mr Fenech said that the inflation of services is another worrying factor which is also having an effect on price increases generally. “The increase in inflation however is not solely due to oil prices. What I am most concerned about is the increasing cost of services that is contributing very significantly to the overall increase in prices, as well as the apparent existence of cartel behaviour in certain sectors. In a small market like ours, these occurrences are more probable. The government must ensure that competitive forces in the marketplace are functioning.” He acknowledged that the rising inflation rate may seriously compromise the chances of Malta’s euro entry, programmed for 2008. “The most worrying aspect of this increase in inflation is that it may jeopardise the government’s target to adopt the euro in early 2008. In June, Lithuania was denied membership within the euro zone due to persistent high inflation. The Greens are ready to participate in discussions to explore ways of dampening inflation. The government must be honest about this problem and ready to widen the national debate. Adoption of the euro is a national challenge and should never be a partisan issue”.