What is happening to Malta’s inflation rate?

The inflation rate in Malta as measured by the the Harmonised Index of Consumer Prices (HICP) is 3.9%, as against an EU average of 3.1% and a Euro area average of 2.4%. What explains this?

At face value, the inflation rate in Malta appears higher than the average across the European Union.

There have been claims, inclusing by the Opposition, that this is proof that the country’s economy is being mismanaged the economy. But, what are the facts?

The latest Eurostat release shows that the inflation rate in Malta as measured by the the Harmonised Index of Consumer Prices (HICP) is 3.9%, as against an EU average of 3.1% and a Euro area average of 2.4%. That said, this is the first time since December 2021 that the inflation rate in Malta has fallen below the 4% mark, and is well below the 7.4% peak observed in October 2022.

But behind the headline and cursory assessment lies a more complex situation. One of the key reasons why inflation is falling in the EU is that the surge in energy prices that affected the index last year is finally passed and energy inflation is now negative as these prices have started to normalise. If one looks at the index excluding energy prices, the rate of inflation is 4.8% in the EU and 4.3% in the Euro area as against 4.1% in Malta. If one also excludes the prices of seasonal food items, the rate of inflation in Malta is 4% as against 4.7% in the EU and 4.2% in the Euro area.

More importantly, if one looks at an even more focused measure of core inflation – which excludes food, alcohol, tobacco, and energy prices – the inflation rate in Malta is down to 3.2%, as against 4.1% in the EU and 3.6% in the Euro area. Malta’s core inflation rate has halved from its peak about a year ago.

Another way to look at things is to focus on the the retail price index (RPI). This index gives less weight to products and services consumed by tourists. If one looks at this measure, inflation in Malta is 3.6%. This is the lowest recorded for several months, and has shown a much faster decline when compared to that in the HICP.

All of this shows that inflationary forces are much less pronounced here in Malta compared with the rest of Europe. Furthermore, if instead of looking at inflation or the rate of change in prices over the last twelve months, one looks at the level of prices, the situation is even clearer.

The HICP in Malta stands at 118, which means that prices are 18% higher than they were in 2015. In the EU, instead the HICP, is 128, which means that prices went up by 28% since 2015. In the Euro area the level is 124. This means that the cost of living in Malta has risen at a much less pronounced pace. If one just focuses on the core inflation, the index is at 115 in Malta, as against 120 in the EU and 117 in the Euro area.

Delving a bit deeper into the available statistics confirms that Malta was less prone to inflation, principally as energy prices were kept stable. This has been the strongest anti-inflationary measure ever undertaken by a Maltese government.

Photo: Alesia Kozik

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