Silvan Mifsud

On 18 March, the full HICP inflation figures for February 2024 were published by Eurostat. This time, this grabbed much attention as February was the first month of the government introduced price capping scheme on some food items. At this point, just to set the scene, some technical commentators had written that this price capping scheme was needed as from Q3 2023 onwards there was a divergence in food inflation in Malta when compared to the Euro Area Average, which meant that food importers & distributors where profiteering and hence government needed to intervene. Some even went all the way to say that this was due to a market failure as competitive forces where not working well enough. Another point to mention is that food prices are dropping all across Europe, hence this analysis is not based on whether food prices in Malta have dropped, but if the drop has reduced any divergence from the Euro Area average or not. Now with the February 2024 HICP statistics out, we can see how the divergence between overall Food prices in Malta and the Euro Area average has developed in February 2024. As shown below the divergence experienced with regards the annual change in HICP for February 2024 (+4.2%) for All Food, is the same as experienced in December 2023 and above the divergence experienced from August 2023 to November 2023, with this divergence in February 2024 being only below that experienced in January 2024 (+5.7%) However, the above is just an initial analysis which merits a deeper dive to really understand what is happening. To do so let us first examine the divergence between the Euro Area Average and Malta with regards the Annual change in HICP for February 2024 with regards Processed Food (excluding Alcohol & Tobacco). As shown below you will see that the divergence in February 2024 (+3.5%) was above the level experienced from August 2023 to December 2023, with only January 2024 having a higher divergence of 4.1%. If we do the same and now examine the divergence between the Euro Area Average and Malta with regards the Annual change in HICP for February 2024 with regards Unprocessed Food, we see that the divergence in February 2024 (+3.1%) was above the divergence experienced from August 2023 to November 2023 and below the divergence experienced in December 2023 (+5.4%) and January 2024 (+6.5%). The above analysis seems to indicate that the overall food price changes in February 2024 for unprocessed food was a much greater contributor to reduce food inflation in Malta than processed food. To have a more detailed look to understand this please have a look at the below detailed figures for certain popular food categories, which compares the Euro Area Average and Malta’s Annual HICP rates from August 2023 to February 2024. The above figures outline that for the vast majority the divergence between the Euro Area Average and Malta’s HICP annual rate of change per month has remained almost the same between August 2023 to February 2024, with the exception of Coffee, Frozen Vegetables and Preserved Milk which had a reduction in divergence in February 2024. However, the real big reduction in divergence was in Fresh Vegetables. This explains why we earlier could see that the major contributor to the reduction in food inflation in Malta in February 2024 was Unprocessed Food. We will now see how things will develop in March 2024. However, for March 2024 we will have to keep in mind that a major new discounted food retailer has started its operations, which will surely leave its effect. It would be interesting to compare the March 2024 HICP figures with the February 2024. Finally, this column has always provided technical and independent analysis based on facts and official statistics. The aim of this column is to analyse the data and say things as the data presents them.

Silvan Mifsud

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