In the last two years, inflation has risen sharply due to several underlying factors, such as supply-chain bottlenecks, increase in international freight charges, labour shortages, and strong consumer demand. Malta’s inflation rate remains significantly higher than the eurozone average.
As prices have risen faster than any other point in four decades, political policymakers scramble for explanations and solutions to relieve the heavy burden many ordinary people carry due to soaring prices, especially for food and some essential services.
The preferred short-term solution being pursued by the government is to pressure supermarket owners and importers to reduce recommended retail prices of a range of staple groceries by 15 per cent starting this month.
At least two major supermarket chains have signed up to the agreement. Other importers and retailers are angry at what they consider the government’s forcing the move on the sector that they equate to illegal price-fixing.
Many consumers will feel relieved that, at last, something is being done to address the impact of high inflation. However, sources tell us that supermarkets could supplement these cuts by inflating the prices of other goods.
The economic principle of supply and demand does not seem to generate the competitive benefits that free market supporters vouch for. Malta’s retail food outlets have increased substantially in the last few years, so competition is not lacking. Still, prices keep rising beyond reasonable limits even after the worst effects of COVID and the Ukraine War are over.
Many consumers are now asking whether the country’s retailers have been using soaring inflation rates as an excuse to raise prices and boost their profits. The free market model often reaps consumer benefits, but its dynamics can often be manipulated to produce adverse effects. Price-gouging and profiteering by suppliers is a reality that must be addressed.
It is fallacious to argue that policymakers should let the free market regulate itself even in periods of emergency like we experienced during the pandemic, the Ukraine War and the persistent high inflation phase. The government’s moral suasion tactics may be the best short-term solution. But the long-term objective must be to enact competition and consumer legislation that discourages greedflation.
Policymakers must study the strategies adopted by other Western countries that embrace free market policies. The UK prime minister, for instance, said his government was looking at the legislative framework to see what may be necessary to do to prevent profiteering.
The US has gone even further. Since the onset of the pandemic, 36 states have enacted anti-price-gouging legislation that applies in periods of emergency like an extended stretch of high inflation. This is not price regulation but a way of ensuring that price increases passed on to consumers are consistently reasonable and justified.
The risks of market manipulation by suppliers who enjoy market dominance for essential goods and services must not be underestimated. Such legislation should be modelled on best practices that are constantly evolving to discourage ‘tacit collusion’ (unspoken agreements between suppliers) or ‘strategic hoarding’ when suppliers deliberately hoard scarce essential supplies to drive up prices.
The consumer protection agency must be given the resources to ensure that any price hikes are justified, based on verified costs. Businesses are free to raise prices but not allowed to increase the price of essential products excessively to take advantage of high inflation.