Malta inflation rates explode with rise in food prices

Malta is registering its highest annual inflation rates in food and non-alcoholic beverages, as it records its steepest yet increase in inflation in over 15 years.

Price inflation exploded in 2022 due to the effects of the Russian invasion in Ukraine, with the post-pandemic recovery suddenly stifled by the rising cost of wheat and agricultural goods, as well as paper.

Data from the National Statistics Office shows that Malta’s inflation rate exploded from 2021 to 2022, to well over 6% in one year.

In February 2023, the highest annual price inflation rates were recorded in food and non-alcoholic beverages were of 13.2%, and then in housing, water and energy (9.1%).

According to the NSO, the largest upward impact on food is due to the higher meat prices; the Central Bank’s quarterly review said it was dairy products. Eurostat found the food categories where the most significant rises were registered in EU countries were fresh whole milk, eggs, sugar, oil and fats, butter and other edible oils, ranging from 30.2 per cent to 56.6 per cent on average. Prices were already rising in the post-pandemic recovery of 2021, shooting up the year after the Russian invasion.

It is the price of unprocessed foods that is the sub-component in Malta’s inflation index with the highest price increases – over 5% each month throughout since October 2021, and entering double-digit territory from December 2021 onwards.

The Central Bank’s own analysis also found that prices at restaurants and cafés rose by 10.5% in September 2022, up from a 9.5% increase back in June.

Yet despite the continued awareness of higher food prices, the Central Bank’s latest quarterly review also found that the strongest increase in individual consumption was in restaurants and accommodation services, suggesting a continued appetite for such recreation despite increased food prices.

Inflation in the European Union trebled in 2022 compared to the 2021 annual figures, clocking the highest growth rate ever. But while the EU’s record inflation figures are linked to the rise in energy prices – a direct consequence of the Russian invasion of Ukraine.

However, household inflation in Malta has stayed below that recorded in the euro area, mainly diverging due to subsidised energy prices in Malta.

According to the Central Bank’s outlook for the euro area, food inflation is expected to start moderating later in 2023, as pipeline pressures from past increases in several commodity prices are set to subside.

Why food prices remain high

The war in Ukraine and the pandemic before it shot up food inflation: a case in point was the initial blockage in ports to grains from Ukraine, which depends on agriculture for 11% of its economy, that was relieved by the Black Sea grain deal – now set to expire – and sanctions on Russian wheat, corn and other grains.

Ukraine and Russia are major exporters of wheat, maize, barley, and sunflower seeds and oils, and before February 2022, Ukraine used to ship most of its food exports through the Black Sea. Russia and Belarus are also major fertilizer exporters, especially to the Middle East and Africa.

The Black Sea grain deal with Turkey allowed the ports to reopen to Europe and Africa, which solved availability problems, but basic foodstuffs are still very expensive.

The reality is that oil and gas prices, also higher due to the war, are still high, and these have driven up the prices for fertiliser, and fuel for farm equipment, as well as the logistics of food transportation. They are especially high considering that the 2021 post-pandemic recovery was struggling to meet supply challenges to the sudden spike in consumer demand.

Extreme weather events driven by climate change add a third variable.

For islands like Malta, where a certain portion of foodstuffs are imported, the costs of fuel and energy, and transportation, are major drivers of food costs.