More than three quarters of business in the wholesale and retail sector have increased their selling prices between July and September this year, a Central Bank report has confirmed. The causes of this surge vary from increase in raw materials, freight, transportation and shortages in producer countries.

This trend has emerged in a Central Bank report which gauges business sentiment in the third quarter of this year. Though the overall business conditions continued to improve in line with the economic recovery from the shocks caused by Covid-19, concerns were raised on a significant increase in costs. In turn, this is eroding households’ spending power who cannot keep up with the rise in the cost of living. UHM Voice of the Workers is warning that unless the cost of living mechanism is reviewed the situation will only get worse.

The report which was compiled on the basis of the feedback received from 66 business shows that the increase in prices was mostly pronounced in the wholesale and retail sector where 78% reported that they had increased the selling price of their products. This category includes essential items such as food, drink, clothes and white goods. Construction and real estate followed, with 60% saying they increase selling prices and the manufacturing industry ranked third with 44%.  In this respect rising prices of raw materials like steel, wood, plastic and paper were a major cause. 

The least affected were businesses in the services industry where only 21% increased prices, meaning that overall, 39% of those who took part in this survey said they increased prices. Significantly, all firms within the construction sector, 75% in the manufacturing industry and two thirds of firms in the wholesale and retail sector reported that input costs had risen. On the other hand only 14% reported reductions in selling prices.

Apart from higher costs to acquire raw materials, prices were pushed upward due to delivery delays, shortages from producer countries and disruptions in international shipping. In turn this resulted in inflated transport costs which were accentuated by low competition in the global shipping market, Covid-19 port restrictions and the reduction of available sea and air routes to Malta. The Central Bank report also cited a shortage in the microchip industry and increased bureaucracy due to Brexit. The aforementioned conditions are giving rise to a vicious circle, as companies are overstocking thus accentuating the shortages even more.

On a positive note, 49% of respondents reported an increase in activity when compared to the second quarter. Short-term expectations about business activity also improved. Almost half of the contacts reported that they expect business activity to expand over the next three months, while 11% anticipated a decline. As a result, the net share of respondents expecting an amelioration in busi­ness activity increased to 37%, from 33% in the previous round. Moreover, the share of contacts reporting that the outlook was uncertain receded further.

In the third quarter, 73% of respondents reported that investment plans continued as scheduled, slightly up from 69% in the second quarter. A further 14% reported postponement. The share of respondents reporting cancellations rose marginally to 3%.

In view of the increase in activity, a net 37% of firms plan to hire staff, broadly in line with the previous quarter. However, more firms during the quarter under review have expressed concerns about labour shortages.