29 June 2005

The Web

PM perplexed by rising inflation

Karl Schembri

Prime Minister Lawrence Gonzi expressed his perplexity at high consumer prices which are raising the inflation rate when competition should be doing the opposite.
In an interview with MaltaToday which will be published next Sunday, the prime minister says he is “worried” by the rising inflation rate which, apart from the rising costs of oil, seems to be triggered by cartels.
“Oil is one of the reasons (for high inflation), but the fact remains that there are other products with high prices which should have gone down,” Gonzi says. “We are worried by the rising inflation rate and we’re looking at it. We have to see that there is fair competition and not cartels which keep up their prices artificially. So we have to ensure that the right controls are in place, when competition should be giving us lower prices.”
According to the Governor of the Central Bank, Michael Bonello, rising inflation in May contrasted with the declining trend of inflation among Malta’s main trading partners. Rising inflation was also inconsistent with the sluggish economic activity, pointing to rigid prices of goods and services.
“Prices should be going down when they aren’t,” the prime minister admitted.
Asked about the decreasing revenue from income tax and national insurance, Gonzi said: “While we’re making more revenues than expected from VAT – which is very interesting because it is a tax on consumption, proving wrong all those who are saying people are not spending money on anything as if we were in a crisis – when it comes to income tax, yes we’re not getting as much payments as we had budgeted. There are particular reasons for that. If government is pushing tax payers to pay their arrears and fines, business usually postpones payments on certain items to settle others. It’s something we’re following closely. As regards social security, even there we have a larger expenditure than last year’s although it’s very close to what we had budgeted. What is interesting is that unemployment is going down at a very steady rate.”

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