Issue link: https://maltatoday.uberflip.com/i/1508574
8 OPINION 28.9.2023 How to tame inflation and attract better visitors George Mangion George Mangion is a senior partner at PKF, an audit and consultancy firm, and has over 25 years' experience in accounting, taxation, financial and consultancy services. His efforts have made PKF instrumental in establishing many companies in Malta and established PKF as a leading professional financial service provider on the Island H eritage buffs exhort us to pro- mote our historical heritage as an integral component of the brand. Ideally, trained officers are engaged by MTA to inspect and protect areas as mod- els for sustainable tourism, enhancing responsible travel to natural areas which conserves the environment and sustains the well-being of local people. So, the question remains - are we poised to capitalise on an outstanding recovery this year capitalizing on the phenomenon of "revenge tourism"? Few doubt that arrivals will reach anoth- er record this year as the entire ecosystem is conveniently geared to please the all-in- clusive, flowing beer brigade. And few in Malta question the effect of an increase in prices given that the NSO declared that the annual rate of inflation as measured by the Harmonised Index of Consumer Prices remained at a constant of 0.1% last month while the 12-month moving aver- age rate for April stood at a mere 0.4%. e largest upward impact on annual inflation was measured in the education Index, while the largest downward impact was recorded in the restaurants and ho- tels Index. On the financial front, a deficit last year of 10.1% is forecast to grow to 12% this year before dropping by half next year to 5.5%. e balance of payments which in 2019 showed a surplus of about Euro 70m, now the deficit exceeds Euro 1,500m. As can be expected, this resulted from unprec- edented costs of fighting the pandemic. State debt will rise another tranche to fin- ish 55.5% of GDP next year. ese statis- tics were not easy reading, especially for the Malta Chamber of SME's as it warns the government about rising prices on imported items over a range of sectors. Food prices are pushing inflation up, with the National Statistics Office saying that the annual rate as measured by the retail price index was at 2.08% in August, up from 1.81% in July. e Malta Chamber of Commerce, En- terprise and Industry believes the infla- tion index on which the cost-of-living ad- justment (COLA) is based is not showing a major spike in local food prices, but a slow increase over time, which, it says, is the "ultimate mix" of a number of issues and challenges that are heavily impacting the price of goods. Extra costs are undeni- ably incurred by Maltese traders as part of their transport and logistics operations to access overseas markets. Problems, were attributed to the lack of containers as prices have also soared from around €3,000 to €10,000 (some down- wards adjustment is a blessing). Price movements are attributed to hefty increases in the price of imports from Asia. Production and distribution costs of goods have been pushed higher world- wide by disruptions caused by the pan- demic, while oil and commodity prices have surged (oil now in the $90 bracket). is is causing inflation which needs to be factored in when computing the next round of COLA wage adjustment exer- cise. Unions cannot ignore their members plight in face of such increases and must at the MCESD meeting (headed by expert Dr Cardona) show their objection to the way minimum wages are adjusted. Im- porters, badly hit by reduced turnover over the past eight months cannot but ad- just upwards the prices unless the market prohibits them, in which case they bear the cost to remain competitive. Naturally, during deficit periods, gov- ernments borrow heavily to pay maturing bonds. At present, cost of borrowing is at a good rate of interest, so it will not ruffle feathers but once inflation creeps in, in- terest rates will rise. In fact, the 10-year USA Treasury bond rate touches 4.4%. e finance minister promised not to re- sort to higher taxation (to settle soaring debt) which is understandable not to up- set voters. As can be expected, some economists fear that inflation will return as the pan- demic and the heavy financing of fur- lough schemes will cease. It is obvious that if the global recovery picks up pace this year, the main focus will be on the im- pact it will have on prices, with observers warning a long period of high inflation will force central banks to wind back the ultra-loose monetary policies. Starting with the USA economy, we no- tice the upward pressure on inflation re- sulting from President Joe Biden's massive stimulus package passed earlier this year, while he harbours other Keynesian ideas to splurge trillions on infrastructure, not forgetting help for low-income families. As expected, oil markets have stabilized at higher rates (now touting upwards of 90 dollars). Moving on, we recall how in April, the US witnessed a year-on year in- flation growth at 4.2 per cent. is is dou- ble the previous level of 2.6 per cent. e core inflation rate now reached the three per cent level. Eurozone inflation is also likely to trend higher and will possibly average about 3.8 per cent in the second half of 2023. Meanwhile, Germany's producer prices increased by 5.2 per cent year-on-year in April, faster than the 3.7 per cent rise seen in March. is was the highest increase since August 2011, when prices rose after the 2007/8 financial crisis. Germany is in the throes of a recession. Back home, the Malta Chamber of Commerce says the international supply chain shocks brought on by the COV- ID-19 crisis have increased pressures, reflected into added costs due to logistics disruption, lost reven¬ues, higher prices of sourced goods, unavailable materials that are suddenly in short supply and the time and effort required to secure them. e 2024, budget will be an interesting and intriguing one. Watch out for the lit- tle red box. Tourism minister Clayton Bartolo It is obvious that if the global recovery picks up pace this year, the main focus will be on the impact it will have on prices, with observers warning a long period of high inflation will force central banks to wind back the ultra-loose monetary policies