Consumers usually experience retail price increases maybe once or twice a year. But when COVID hit, we saw a steady rise in prices. The Ukraine war added momentum to the soaring prices phenomenon, disrupting the budget plans of many consumers who have seen their spending power diminished.
For a while, the price hikes were understandable: supply chains were disrupted, manufacturers were paying more for the ingredients needed to make their products, companies faced difficulties hiring workers, and consumers were panic buying.
Today, price pressures from the war in Ukraine and the supply-chain crisis are easing. Shops generally have a full inventory of products and shoppers are engaging less in compulsive buying. Yet, prices, especially of food and medicines, are still soaring.
Identifying the real reason behind this painful reality is not simple. Politicians like to project themselves as defenders of consumers and, at the same time, supporters of the business community. Labour MEP Alex Agius Saliba wants the European Commission to investigate Maltese food importers for antitrust violations. He argues that Malta suffers from the natural disadvantages of being a small island on the periphery of Europe and cannot enjoy the benefits of economies of scale.
Nationalist MEP David Casa accused Agius Saliba of targeting Maltese business owners for problems he said were caused by the Labour government.
The Chamber of Small and Medium Enterprises criticised Agius Saliba for his initiative, arguing that Malta has its authorities and clearly defined routes to handle concerns related to competition issues.
The bickering among MEPs and business lobbies is not a substitute for a thorough investigation on whether businesses are indeed capitalising on the COVID pandemic and the Ukraine war to boost their profits.
The Malta Competition and Consumers Affairs Authority must be more pro-active in determining the real causes behind the soaring prices. Admittedly, this phenomenon is not limited to our country. Other countries are trying to find the best way to deal with business abuse, especially those supplying essential products like food and medicines.
One indicator that the competition authority must examine is that of corporate profits. While inflation is slowly falling, even if it remains much higher than the pre-pandemic years, we need to know whether corporate profits are rising faster than inflation.
If the profit margins of businesses today are rising, then action needs to be taken to ensure that this is not the result of greedflation, excuseflation, price gouging or corporate profiteering. These new terms coined by consumer protection organisations refer to the increase in prices beyond what their costs suggest is necessary or what economic theory would support is prudent.
Some economists initially threw cold water on profit-driven inflation, suggesting that the fault fell on voracious consumers afflicted by panic buying.
The same economists also argue that wage increase pressures and government-support programmes may have also contributed to soaring prices.
Still, the competition authorities must investigate the phenomenon of “sellers’ inflation”. Bottlenecks like those rampant supply-chain shortages give companies what economists call “temporary monopoly” status that dents the effectiveness of competition, especially in a small market.
Identifying the real reasons behind soaring prices requires a thorough exercise that must not be tainted with political opportunism, especially in the run-up to the European Parliament election.
Our politicians and competition authorities must observe their legal and moral obligations to protect consumers from abuse.