Inflation, consumer confidence and population

Silvan Mifsud is director of Advisory at EMCS Tax & Advisory and also a council member of The Malta Chamber

The annual inflation rate in Malta in July was slightly above the euro area annual inflation rate. It is becoming more evident that until recently our inflation rate was below the euro area average due to the higher energy prices, that were completely absorbed by the government in Malta. Now that energy prices have gone down, we have an annual inflation rate which is very close to the European average. However, while in the euro area, the highest contribution to the annual euro area inflation rate came from services (+2.47 percentage points, pp), followed by food, alcohol and tobacco (+2.20 pp) and non-energy industrial goods (+1.26 pp), in Malta the highest contributors to annual inflation is food and non-alcoholic beverages (+1.8pp), followed by restaurants and hotels (+0.9pp).

In last month’s economic update, issued by the Central Bank of Malta, one can see that the consumer confidence indicator decreased to -10.4 from -9.9 in May, standing just below its long-term average of -10.2. Consumers’ assessment of their financial situation over the last 12 months deteriorated somewhat relative to May. This was followed by a more negative outlook of the general economic situation and the financial situation over the next 12 months. These developments offset an increase in expectations of major purchases over the next 12 months.

With regards population, recent articles have put forward the argument that Malta’s high population density is not that high when compared to certain European cities and that it would be a mistake to compare the population density in Malta to that of other countries, as many countries have large stretches of areas which are not inhabited. I feel that such a way of comparing things, defeats basic logic.

Firstly, many European countries have the luxury of being on the mainland and hence even if one lives in a densely-populated city, people could easily leave that city by driving or catching a train. That is a luxury we do not have as the only way to leave Malta is to catch a plane. Secondly, as we all know, many European cities have the inner core and external peripheries and thus those persons not wanting to live in the densely-populated inner city have the luxury of living in the less densely-populated peripheries, which are many times still serviced by various transport options to the city centre. Moreover, since Malta is a country, not just a city in a bigger country, we have to use land space to service the country’s needs like a power station and storage facilities, while in densely-populated European cities these are housed somewhere else within the country.

I always get the sensation that such comparisons are being done by lobby groups who want to keep increasing Malta’s population and keep building any remaining area on the island, at all costs.