New research has suggested that people in Malta are handling the rising cost of living by cutting back on non-essential items such as eating in restaurants, and staying in hotels.

The analysis by KPMG shows how spending habits have "yet to return to their pre-pandemic levels". 

It finds that 49% of people’s income was spent on non-essential items in 2022. This figure previously stood at 54% in pre-pandemic 2019, dipping to 47% throughout the pandemic years.

Non-essential items are defined as goods and services consumed outside the home such as transport, restaurants, hotels and recreation. Essential items, on the other hand, include food, housing and health.

Why are people spending less on non-essentials?

The analysis concludes that the pandemic “brought about a major change in consumer habits”, attributing this shift to several factors.

One such factor, according to KPMG, is that the increase in the cost of essential items may be forcing people to reduce their expenditure on non-essentials.

A recent Times of Malta survey found that the rising cost of living is the top concern among Maltese people.

The analysis also points to other possible causes, such as the lingering effects of the pandemic on the catering and entertainment industry, as well as the increase in the number of people working from home leading to less expenditure on transport and restaurants and greater expenditure on utilities.

Eurostat figures show that Maltese households registered the biggest drop in consumer spending in the EU from 2019 to 2020, with spending going down by 22%, more than double the EU average.

A 2022 EY survey found that people in Malta are “fundamentally rethinking” their lifestyles because of the rising cost of living, resulting in them travelling less and reducing their spending on entertainment and fashion.

In general, KPMG found that consumer inflation rose marginally to reach 7% in February 2023. This remains below the overall inflation in the Euro area which has continued to decrease over the past months, now lying at 8.5%.

Inflation in the Eurozone remains significantly higher than the European Central Bank’s target of 2%.

KPMG's analysis highlights how the Central Bank of Malta estimates expect Malta’s annual consumer inflation to gradually decrease from 6.1% in 2022 to 2.1% in 2025.