The steady increase in the prices of consumer products over the past three months has sent the cost-of-living adjustment through the roof, with the wage rise that would have to be awarded next year at a whopping €13 per week so far.
The cost-of-living adjustment (COLA) is awarded annually to compensate for inflation over the previous year. It is worked out on a fixed formula based on the cost of a basket of products and the minimum wage.
If these subsidies are removed, COLA will exceed the €25 mark, which would cripple a good number of businesses- Joe Farrugia, Malta Employers Association
Paid by employers as part of their workers’ salary, the COLA has hardly exceeded €4 during the past 10 years, with inflation fairly stable.
This year, however, employers are having to cough up €9.90 a week based on last year’s raging inflation, with many saying they would struggle to keep up.
The projected €13 a week increase for next year has employers even more worried.
“If the current rate of inflation persists, an increase in COLA of €13 for 2024 will definitely have an adverse effect on many businesses,” said Joe Farrugia, director of the Malta Employers Association.
'Unprecedented wage inflation'
“What is even more worrying is that such projections exclude the fact that energy prices are being subsidised. If these subsidies are removed, COLA will exceed the €25 mark, which would cripple a good number of businesses.”
He said these factors, together with pressure to further increase the minimum wage, would result in unprecedented wage inflation that would impact the competitiveness of many companies and fuel further inflation to the detriment of both businesses and consumers.
“The resulting wage price spiral will affect consumers negatively – especially low-wage earners – and could also generate redundancies if it becomes unsustainable,” he warned.
Inflation has been spiralling out of control in most countries, especially after the start of the war in Ukraine which brought about price increases in several products as well as increased transportation costs.
While inflation has been more or less under control in recent months, Eurostat figures issued on Wednesday showed that inflation in Malta for March was higher than the Eurozone average: 7.1 per cent compared to 6.9 per cent.
According to figures published by the European Statistics office, inflation in the Eurozone in February stood at 8.5 per cent, a drop of 1.4 per cent over the previous month, while inflation in Malta increased by 0.1 per cent in February.
Compared to March 2022, Malta’s inflation was up by 2.6 per cent while inflation in the Eurozone fell by 0.5 per cent.
'COLA needs to be stabilised'
Farrugia believes that pegging wage increases to the cost of living as calculated for COLA is one of the main contributors to local inflation.
He called for the introduction of a stabilisation mechanism that would leave the calculation of COLA unchanged but would even out the spikes over a number of years.
“This would have hedged the labour market both in times of zero inflation and also during periods of high inflation as we have experienced these last two years. I still believe that what was proposed makes sense in the current circumstances,” he said.
While local importers have largely blamed shipping costs and overseas inflation for the hefty increase in prices, there is a growing sentiment that operators are deliberately inflating prices with no justification other than to boost their profits.