The government’s controversial Stabbiltá scheme, which saw the price of some 450 food items slashed by 15%, has contributed to food inflation dropping by 2%, according to a new economic forecast published by the Central Bank on Tuesday.
The scheme, introduced in February, was touted as a measure to contain inflation across several essential food products.
The Central Bank report notes that once the scheme was introduced, inflation across almost all food products slowed, with some (such as margarine, pasta and preserved milk) reversing their price increases altogether.
By June, the price of food products affected by the scheme was two percentage points lower than it was before the scheme’s introduction in January, the report says.
However, the report says, it is difficult to gauge the precise impact of the scheme, since these figures also include brands and food items that were not included in the scheme.
Nevertheless, Malta’s food inflation across some food products, particularly processed food, remains higher than that across the Euro area, the report continues. It ties this to Malta's dependence on importation, making Malta's food inflation more volatile than that of many other European countries.
GDP slowing, deficit to shrink, debt to grow
More broadly, the report predicts that Malta’s GDP will gradually slow down, dipping from 5.7% in 2023 to 4.4% this year and, eventually, 3.4% by 2026.
The country’s deficit, which has seen it placed under the EU’s excessive deficit procedures, will drop from 4.9% (or almost €1 billion) in 2023 to 3.1% by 2026 as inflation-mitigation measures are gradually cut.
The bank predicts that Malta’s debt-to-GDP ratio of 50.3% by last year’s count will rise to just over 54% over the next three years, but will remain below the Maastricht criteria’s 60% threshold.
Wages finally catching up with inflation
There is good news for workers, with the bank predicting that Malta’s average wage is set to grow “at a significantly faster rate” throughout 2024 after lagging behind inflation for several months.
The report suggests that wages will grow by 5.1% in 2024, as they try to make up for their “lagged response” to the rising cost of living, which has seen people’s wages outpaced by their daily expenses.
This means that wages will finally start to “catch up” to the rising cost of living, with the real value of people’s wages getting closer to what it was before the cost of living crisis that hit the world in recent years.
But this rapid growth will be short-lived, with the growth in wages set to dip to 3.8% in 2025 and 3.2% in 2026.