Time to start redeeming the pre-election optimism and pledges
The economic blow delivered by the war in Ukraine to the global economy, at a time when it was still reeling from the Covid-19 shock, does not bode well for workers. Russia’s invasion of its neighbour has translated to a sharp rise in the cost of living (inflation) while dampening prospects of an economic recovery. Consequently, in the coming months governments will have to dig deep in their pockets to mitigate the impacts of these multiple blows.
Prior to the outbreak of war, the global economy was already struggling to come to terms with shortages in sectors like the semiconductor industry and certain raw materials whose production and extraction had been hit by the slowdown which the pandemic had triggered. Furthermore, the shipping industry could not meet demand, with the result that certain shortages were accentuated even more. Just when there were high hopes that we could be seeing the tail end of the pandemic, Russia invaded Ukraine and in economic terms hell broke lose.
NSO data shows that Malta witnessed food inflation of 8.4% in February when compared to the corresponding months of 2021. From a wider perspective, consumer prices in the 19 eurozone countries increased by an annual rate of 7.5% in March, according to Eurostat.
While some experts believe that this acceleration in the cost of living will slow down in the coming months, others warn that the longer the war in Ukraine takes, the more acute the problem will be. This conflict resulted in large increases in prices for crude oil and is likely to result in even higher farm production expenses. Grain production and cereals which are key elements in the food chain industry are also being affected as both Russia and Ukraine are among the world’s biggest producers. Moreover, the fact that there seems to be no end in sight for this war is room for further concern.
The situation on the ground for thousands of Maltese households is getting tougher each time they go shopping at the supermarket or the convenience store. Contrary, to popular perception inflation is not only harming low-income earners but the so-called middle class as well. Let us not forget that the latter more often than not are the ones which are left in no-man’s land as they are considered ‘too rich’ to benefit from certain allowances and support from the State, but at the same time their level of income pales in comparison with those who are considered to be well off.
In the 2022 Budget the government had pledged to introduce an additional cost of living mechanism for low-income households. Six months down the line it is time to wrap of the discussion and come up with a tangible proposal. However, this will only address part of the problem. What about the middle-class? Reality is that the root of the problem is the Cost of Living Allowance mechanism. For many years we have listened to politicians acknowledging that this tool should be updated. It beggars belief how this mechanism does not factor in the rise in property prices and mortgages. The bottom line is that our wages are not coping with inflation. Nobody is expecting government to do miracles or brandish out some magic wand. However, only a few weeks ago, at the height of the election campaign, we had warned against raising expectations too much or doing unrealistic pledges. Ultimately the proof of the pudding is in the eating. Let us hope that the optimism which characterized Malta in the weeks leading to the March 26th election was based on solid ground and not on political expediency.