Stabbiltà is an innovative social agreement that recognises the need to address the impact of high prices on essential food items on purchasing power, particularly of those people on low incomes.

Instead of welcoming the agreement, some have argued that the government was not right in singling out the prices of these items. The most common criticism is that there is a lot of competition and prices follow international trends.

Well, anyone who accesses the Eurostat database can verify that, whereas this might have been the case until mid-2023, in recent months this is no longer true. 

Take, for instance, the movement in the price of coffee in Malta. In June, this was 13% higher than a year before. In December, it was 16% higher. Look at what has happened in neighbouring Italy. An inflation rate of 7% (half that in Malta) is now just 2%. 

Or take what has happened in another island state, Cyprus, just in case someone argues that transport costs in Malta are higher than on the continent. In June, coffee prices were up 16% on a year-ago basis but, by December, inflation had fallen to 1%. Is there something special that affected the price of coffee in Malta but not in Italy or Cyprus? 

Take another case – frozen vegetables. In June, the price of frozen vegetables in Italy was 16% higher than it had been a year earlier. By December, this rate had fallen to 5%. Similarly in Cyprus, from 13% in June, inflation fell to 5% in December. What about Malta? Well, inflation was 8% in June and 14% in December.

Look at margarine. In June, inflation in Malta was lower than it was in either Italy or Cyprus. By December, Malta’s inflation rate in this item was again the highest of the three countries. The same goes for bakery products, preserved or processed fish (such as canned tuna).

A 2.7% change in the price of unprocessed food has the same impact on inflation as a 1% change in the price of processed food

These are just five of the many processed food sub-indices of the HICP (harmonised index of consumer prices), not incidentally all covered by the Stabbiltà initiative. The story is the same.

Until June, inflation mirrored that in Italy but then something happened and prices in Malta stayed where they were or even rose while, in Italy, they fell. Not intervening in such an environment was not an option.

Source: Eurostat

The other argument that is being floated around is that the fact that inflation in Malta is falling at a slower rate than in the rest of the EU is not the fault of processed food inflation but, rather, of some other sub-index. The finger has been pointed, for instance, at the unprocessed food component. This is disingenuous, to say the least. Unprocessed food inflation in December was 12.2%, as against 8.6% inflation in processed food. 

What is not being said is that unprocessed food is highly volatile. In February, it was 13% while in July it was 5%. This sub-index does not drive inflation permanently, the same way that processed food does.

Moreover, any analyst worth their salt knows that unprocessed food has a much smaller weight in the HICP. To be precise, unprocessed food has a weight of just 4.8% in the total HICP as against 12.9% of processed food. 

In simpler terms, a 2.7% change in the price of unprocessed food has the same impact on inflation as a 1% change in the price of processed food. So, the 12.2% inflation rate of unprocessed food contributed 0.6 percentage points of the overall inflation rate in December while the 8.5% inflation of processed food contributed 1.1 percentage points of the overall inflation rate, or nearly double the impact.

The argument about the impact of rents on the index is equally spurious. Rents have a weight that is six times less than that of processed food and their contribution to the overall inflation in December was a quarter that of processed food.   

Does this mean that the government does not care about the inflation of unprocessed food or of rents? If that were true, we would not be spending millions of euros on subsidies on cereals and animal feeds or improving rent subsidies and strengthening rent regulations. 

Stabbiltà is just one of the government’s anti-inflation strategies, of which the stability in energy and fuel prices is the key pillar. To argue that the government’s approach is not holistic is clearly belied by basic facts.

Silvio Schembri

Silvio Schembri is the Minister for the Economy.