Consumer prices set to ‘accelerate’ this year, Central Bank outlook shows

Inflation is expected to “accelerate” this year, reflecting higher prices for services and food, the Central Bank of Malta said in its latest economic forecast.

Annual HICP inflation – which is the measure used to compare with other EU countries – is projected to stand at 2.7% in 2022, a strong pick-up from 0.7% last year.

In its first quarter publication, Outlook for the Maltese Economy, released today, the CBM said it has revised inflation up by 0.7 percentage points for 2022.

“The upward revision reflects stronger than projected inflation outcomes in recent months as well as the intensification of import price pressures brought about by global supply-chain disruptions,” the CBM said.

The upward revision also reflects the increase in prices of several food items during the start of the year. But the CBM added that evidence from its Business Dialogue exercise and the European Commission’s business confidence surveys suggests that an increasing share of retailers expects to raise selling prices this year.

“In 2022, the acceleration in overall HICP is expected to be mainly driven by higher services inflation, which is projected to contribute 1.2 percentage points to overall HICP inflation. In addition, the rise in food prices is projected to pick up in 2022, largely due to higher unprocessed food inflation although processed food is also expected to increase sharply, reflecting the indirect impact of higher energy prices and poor harvests globally,” the CBM said.

Non-energy industrial goods (NEIG) inflation is also expected to increase strongly due to higher import price pressures in source markets, as well as higher transport costs.

However, Malta remains shielded from exorbitant energy prices witnessed abroad in view of government’s announcement that it intends to keep stable prices until at least the end of the year.

In Budget 2022, Finance Minister Clyde Caruana had earmarked an outlay of almost €200 million to maintain energy and fuel prices stable.

However, the impact of higher prices in other areas of the economy, not least food, has started to squeeze family budgets. In response to this, government has announced a stimulus package of €70 million in cash handouts. Part of this amount was budgeted for and constitutes tax refunds that were an electoral pledge but workers, pensioners and students will receive an additional cheque to cushion the impact of inflation.

The CBM said import price pressures are expected to gradually normalise over the course of this year as the current mismatch between global demand and supply dissipates. It forecasts that HICP inflation will slow down “markedly” in 2023.

Lower price rises across all sectors of the economy will see inflation fall to 1.9% next year and moderate slightly further in 2024, to 1.8%.