Inflation

There has been public discourse about the rate of inflation in Malta being above the European average. I just wanted to analyse this claim with data in hand. Based on the HICP data below, here is the trajectory of all HICP annual rates per month for the past 24 months for both the Euro Area average and Malta.

One can see that while Malta had an overall HICP rate higher than the Eura average towards the end of 2023, this was very much in line with the Euro area average for 2024 and was also below the Euro area average towards the end of 2024 and the beginning of 2025. Then from the end of Q1 2025, the overall HICP rate for Malta was consistently above the Euro Area average rate.

To understand the main source of why the overall annual HICP rate in Malta was higher than the Euro Area Average, from the end of Q1 2025 onwards, I have extracted the annual HICP rates on a monthly basis for Malta and the Euro Area Average for the main subcomponents of the overall HICP, with the results shown below.

From the above, it is evident that starting at the end of Q1 2025, inflation in Malta (measured by HICP) accelerated in three main categories – Food and Non-Alcoholic Beverages, Transport, and Restaurants & Hotels – surpassing the Euro Area average and creating a divergence between the two.

I therefore decided to delve deeper into these three categories. With regards Food & Non-Alcoholic Beverages the items that experience a much higher HICP based price growth in Malta, when compared to the Euro Area average, (where such difference can be termed as positive divergence) were Meats (especially beef, but also pork and poultry), Preserved Milk, Margarine, Vegetables, Tea, Mineral Water and Fruit Juices. The foods not mentioned had an HICP based increase in prices in Malta which was in line with the Euro Area average or below it.

In the case of Transport, the faster rise in HICP-based prices in Malta compared to the Euro Area average is driven mainly by Transport Services, with a slight positive divergence from Taxi services and a significant positive divergence from Air Transport. With regards Air Transport, from January to September 2024, Malta had an average monthly positive divergence of +11.8% when comparing to the Euro Area average, while this monthly average positive divergence shot up to +26% for the period October 2024 to last month.

With regards Restaurants & Hotels, the subcomponent that showed the largest positive divergence where Fast Food & Take Away Food Services.

When it comes to Services (whereby the major cost component here is wages), based on HICP, Malta had an average monthly negative divergence of -1.3% when compared to the Euro Area Average for the period January to October 2024. This average monthly negative divergence has dropped to -0.4% for the period November 2024 to August, likely indicating that wages in Malta are increasing at a faster pace than the Euro Area average.

In conclusion, the data outlines that in recent months, Malta has faced an elevated inflationary pressure in certain sectors, even as the government maintains energy subsidies. I believe that this analysis underscores the need to address the underlying structural factors contributing to the price increases, such structural factors include Malta’s obvious dependency on importation and the related shipping costs that have been effected by both EU regulation and geopolitical issues, labour market tightness and wage pressures, combined with a tourism industry that is still largely based on volumes.