The inflation ogre

Writing in ‘The Guardian’ a few days ago, Huw Pill, chief economist of the Bank of England insisted that workers and employees should stop trying to pass on rising costs by hiking prices or demanding better wages. In short British households and businesses ‘need to accept’ they are poorer.

He said that the UK is a big importer of natural gas and its price has gone up compared with British goods and services that are sold all over the world. “If what you’re buying has gone up compared to what you are selling, you’re going to be worse off”, he wrote. In his opinion, Britons have to reluctantly accept they are worse off as passing on all expenses to customers will only continue to generate inflation. Obviously British trade unions did not like this point of view one bit.

In the same week, the Central Bank of Malta (CBM) held its annual presentation of its annual report for 2022 and the speech delivered on the occasion by Edward Scicluna currently the Governor of the Central Bank focused on the perils of a high level of inflation

According to Scicluna, ‘Core inflation was 5.3% at the end of December, and in February it went up to 5.6%. We are awaiting that it will peak, and that it will be brought down.’

Core inflation is the increase in the cost of food and the energy sector. He explained that the European Central Bank (ECB) mandate was to achieve price stability and to bring down inflation to around 2%. Scicluna went on to say that although inflation in the euro area has peaked, it is still too high and therefore further fiscal tightening is expected, adding that we need to do more to tackle inflation and must remain vigilant.

Fiscal tightening is not something that the Labour administrations have ever worried unduly about since the first Joseph Muscat electoral victory in 2013. Money was never a problem when the same Edward Scicluna was Finance Minister. The slogan ‘L-aqwa żmien’ was translated by many Labour supporters to mean that the state had somehow conjured up inexhaustable sources of income.

The government managed to dampen somehow what should have been the enormous upward pressure by intervening in the energy and fuel market by stabilising prices in this sector through extensive subsidies.

Subsidising energy had generally and superficially a very good effect. But this subsidy is across the board and, in my opinion, is not sustainable in the long run.

Despite this subsidy, the last annual Cost Of Living Allowance (COLA) increase given to all employees by their employer as part of their salary - and worked out on a formula agreed upon by the social partners over thirty years ago - broke all records. It was €9.90 per week for whole-time employee with pensioners getting an additional €2.60. This constrained many businesses to increase their prices, hence continuing to push inflation up.

This was an absolute record. In 2021, COLA stood at €1.75 while in 2020 COLA reached €3.49 a week. The cost-of-living adjustment is worked out by a fixed formula that considers the prices of a basket of items and services, many of which have spiralled this year. It takes into consideration the minimum wage and the past year’s inflation.

Finance Minister Clyde Caruana has already gone on record saying that had the government not intervened, the COLA could have reached around €25 a week.

Over the past 10 years, with inflation fairly stable, COLA hardly ever exceeded €4. Since 1990, it has only gone beyond the €5 mark on three occasions. Applying the same formula for next year’s COLA, - as the Trade Unions insist - means that it will reach some €13 a week. Inflation would certainly not have been tamed.

One understands that nobody wants to get poorer but inflation must be tamed.

Another issue is the subsidy of fuel across the board. Even this should be revisited. A generous minimum level of electricity consumption based on number of persons in a household should be established. Above that electricity rates should not be subsidised. Wasting money with such generosity must be stopped. Keeping petrol retail prices at the current levels also does not make sense. Something must be thought out.

Policians of both political parties should - for once - be honest about the current inflation problem. Government should be prepared to curb wasting money in giveaways. We need 2 years of belt tightening, as Dom Mintoff usd to say.

Otherwise from ‘l-aqwa żmien’, the inflation ogre will take over our daily life.

A victory for the common man

The decision of the Appeal Court that has ruled that the Lands Authoity cannot take back from the Gzira Local Council part of a public garden for use by a private fuel station is welcome.

This decision alone vindicates the establishment of Local Councils so many years ago. Anyone who has never lived in Gzira cannot even imagine the importance that Gzira residents give to that only open space that is available for their recreation in their locality.

It is a shame that the Mayor of Gzira who was elected on a Labour Party ticket has been criticised for doing the job that the people elected him to do - keep the interest of his locality first and foremost.

On the political front, Labour has made an auto-goal. The lawyer for the Lands Authority that lost the case was none other that Romina Attard, the Labour Party’s president while reportedly the Gzira mayor, Conrad Borg Manché has even been criticised internally within the Labour Party establishment. On his part, he accused the Labour Party of betraying its socialist principles over the issue.

What I cannot understand - and nobody has even tried to explain - is why moving a small petrol station without any other facilities from the main road should ential giving the end user some 900 square metres of land not just for use as a petrol station as existing but also for a car wash, a tyre vulcaniser section, a radiator flushing service and a shop.

Sometimes the governments’ generosity with particular individuals knows no bounds - even when it is at the expense of the common man.