More firms have increased product prices in the last three months of 2021 citing supply chain disruptions, the Central Bank has reported in its quarterly survey with businesses. The trend is further testament to fact that the worrying increase in the cost of living which has been going on since the outbreak of the Covid-19 outbreak does not seem to be ending any time soon.

It transpires that between October and December of last year almost half of the firms (47%) reported increases in selling prices, up from 39% in the previous quarters (July-September). On the other hand, only 6% reported drops in selling prices, which was lower than the respective figure of the previous quarter which stood at 13%.

In its report the Central Bank notes that prices are on the rise due to the cascading effects caused by input costs. A close analysis reveals that firms have been reporting higher expenses in freight costs and increase in prices of products and raw material from abroad such as food, paper, packaging, plastic, electronics, wood, iron, copper and steel. In turn these have impacted 90% of firms in the manufacturing industry and 78% of wholesale and retail firms.

Meanwhile, the extremely volatile situation has led to suppliers abroad to refuse to enter into long-term supply agreements with Maltese importers and are introducing variable price clauses into these agreements. From a consumer perspective, this is resulting in quotes being valid for a very short period of time with the understanding that prices may be higher in case an order is placed when the existing stock runs out. In view of this, businesses are reporting a lot of uncertainty in terms of budgeting, production, planning, and delivery timeframes for clients who more often than not are facing delays.

According to the Central Bank the reasons behind the shipping delays stem from a combination of international factors, such as increased demand, backlog in ports, a shortage of containers, pandemic related mobility restrictions and low competition in the global shipping industry.  Though some firms tried to mitigate this problem by ordering larger quantities to be better stocked, this had the disadvantage of requiring bigger storage facilities apart from encountering cashflow problems.

What about Brexit?

In its analysis the Central Bank also focused on the impact of Brexit on Maltese businesses through a pilot survey carried out last November. Though results should be treated with caution as only 17 companies replied out of 31 contacted, the outcome is nonetheless indicative and seems to reinforce certain concerns.

The results show that almost half were not impacted, but 41% reported a negative effect, while 12% a very negative impact. As expected, the three biggest concerns raised were increase costs, tighter regulations and delays to receive the orders from abroad.

Most of these firms reported lead time increases of one to two months but a few reported even longer delays because of Brexit. A strong majority of Brexit-impacted firms stated that supply from the UK has been restricted. According to responses from this survey, imports from the UK have declined for around a third of respondents. On the export side, none of the respondents reported declines, but a small number recorded higher exports to the UK. Another interesting finding from this pilot survey is that 29% of companies increased their selling prices in response to Brexit, while the rest reported either unchanged prices or noted that their prices were not impacted by Brexit

Government response

Rising prices are fuelling concerns at government level amid signs that this trend might persist for months if not years. As a short-term measure the government has recently rolled out €70 million in cash injections in the form of tax rebates and handouts. In the long term, the government announced its plan to establish a new mechanism to support low-income persons over and above the cost of living allowance which is awarded across the board regardless of one’s income. This new mechanism will be triggered if the inflation exceeds a certain threshold. Talks with social partners have just begun and no decision have been yet taken. UHM Voice of the Workers is in the process of formulating its position.