As euro area inflation rises, Malta’s rate continues to fall

In December 2023 the inflation rate observed in Malta fell to 3.6%, from 3.9% in November. Compared to a year earlier, the rate has almost halved.

The first news release issued in 2024 by the European statistics agency, Eurostat did not make for nice reading. In fact, it indicates that the inflation rate across the euro area increased by around half a percentage point between November and December 2023. The inflation rate rose in Belgium, Germany, Estonia, Ireland, Greece, France, Luxembourg, Austria, and Finland. The highest rate in the euro area is in Slovakia, where inflation stands at 6.6%.

Eurostat’s statement indicates that, in contrast to what happened in most euro area countries, the inflation rate in Malta has continued to decline. In December the rate observed in Malta fell to 3.6%, from 3.9% in November. Compared to a year earlier, the rate in Malta is almost half what it had been, because in December 2022 Malta’s rate had been 7.3%. The inflation rate observed last month in Malta was the lowest observed since December 2021, when the inflation rate was 2.6%.   

Meanwhile, while food prices remain the ones that are showing the highest rate of inflation across the euro area, with an increase of 6.1% over the past year, these prices were not the cause of the latest spike in the cost of living. In fact, the increase in inflation was because several governments are reducing their energy subsidies. A report in The Financial Times reports that energy prices in Germany, which up to November were 4.5% lower than a year earlier, were 4.1% higher in annual terms in December. This nearly 9% increase in electricity and gas prices led to inflation in Germany almost doubling from 2.3% to 3.8% in a single month.

Financial analysts also reported that further price increases are expected in Germany in January, as the Government will increase VAT on restaurant meals from 7% to 19%, as well as increase taxes on domestic flights and diesel used in the agriculture sector.

A report by CNN indicates that, even in France, the inflation rate rose to 4.1% in December, from 3.9% the previous month. Even there, the cause was the phasing out of subsidies on energy.

These developments are expected to lead to the European Central Bank keeping interest rates at a high level for more months, and the first cuts are not expected to occur before June. Before the lastest data were issued, there had been hope that, from March, the interest burden on households would start to be reduced.

Meanwhile, there has there been no increase in the burden of home loans in Malta. Instead, first time buyers are being given a grant of €1,000 a year for ten years to finance part of their loan payments.

Photo: REUTERS/Eric Gaillard

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