‘Raw material prices have not decreased as much as people think’, new Chamber President says on inflation

The new president of the Malta Chamber of Commerce Chris Vassallo Cesareo has said that the truth in the inflation matter is that raw material prices have not decreased as much as people think they have, and that other factors including money spent on employee retention is keeping prices high.

Speaking to The Malta Business Weekly in his first interview since being elected as president of the prestigious organisation, Vassallo Cesario said that while raw material prices have decreased in recent months, one must take into consideration other costs which have increased.

He was responding to a question based around talk that the prices of materials and of shipping has decreased ever since the Covid-19 pandemic and, more so, the onset of the war in Ukraine had promoted major spikes in prices, sending inflation skyrocketing.

“The truth is that the raw material prices have not decreased substantially to the levels that people are thinking. Then obviously you have to take into consideration the fact that other costs have increased,” he said.

One of the most significant of those costs is employee retention, he says.

“You have salary jumps which could be projected before in a business plan, but that’s out of the window today.  Sometimes certain good employees are getting a raise after 3 months because of the retention issues that businesses are facing,” he explains.

Furthermore, on the shipping aspect, Vassallo Cesareo says that these must be broken down, with a distinction being made between Europe and the Far East.

The major spike in shipping costs, he explains, was in the Far East where a 40 foot container containing around €12,000-worth of raw materials saw the price rise from €3,000 to €12,000 during the Covid-19 period.

Vassallo Cesareo describes that as “crisis situation.”

The situation now has changed in the sense that the shipping has gotten cheaper: dropping from €12,000 to roughly €6,000 – but the price of the contents of the container has risen from €12,000 to €16,000 compared to pre-pandemic days.

With shipping from Europe the problems, he says, were in logistics to make sure that the goods were not short-shipped. This is due to the fact that Europe is heavily dependent on particular components coming from the Far East, and shipped goods could end up sitting around for months while those components arrive.

“When you look at these things together, you get a bit more clarity on the costings,” Vassallo Cesareo says.

Another key aspect which has led to skyrocketing inflation across Europe has been the energy sector.  Energy prices exploding upwards on the continents have seen product prices follow a similar trend.  Malta has bucked the trend, mainly as the government committed to subsidising energy prices itself so that they remain stable.

However, this measure could soon be coming to an end: European pressure for the government to cut back on the subsidies in order to balance the books is increasing – and there is a real possibility that businesses will suddenly face a price increase that many of them may not be able to cope with.

Asked about this, Vassallo Cesareo laments that the Chamber had highlighted over a year and a half ago that the energy subsidy scheme was something that “is going to come back to bite us.”

He says that at the time the Chamber had come up with various recommendations, such as having a phased approach to subsidies, or having a partial subsidisation based on one’s average consumption – an idea which Vassallo Cesareo says may have encouraged users into being more energy efficient.

“We were recommending this so that we would not end up having a gun held against our head, which was quite possible and which is ultimately what might happen now, depending on how the matter is handled,” he says.

However, the recommendations were not taken on.

“So now we are in a situation that, yes, we know that this cannot carry on forever.  I think anybody knows that… I doubt you need the Chamber to tell you that it won’t carry on forever,” he says.

He says that the matter must now be handled “carefully.”