Messing with the free market

Last Thursday, the government launched what it described as a price-stability assurance scheme which is intended to slow down inflation. The price of some 400 products will be reduced by up to 15% as from 1 February and the price is set to remain stable at least until the budget for 2025 is presented, a nine-month stretch after which the government hopes there will be no need for further intervention.

To give the initiative more importance, Prime Minister Robert Abela was present at a ceremony where importers and retailers of food products signed up to the scheme.

Not everybody has endorsed the idea. Actually, both the Chamber of SMEs and the Chamber of Commerce have blasted it, saying that this should not be the way things are done.

In a statement issued before the signing ceremony, the Chamber of Commerce said that the approach chosen by the government to try to control inflation of food prices is regressive and reminiscent of decades ago when consumer protection came at the expense of consumer choice. It was a time when the government controlled the market instead of promoting competition through proper monitoring and regulation, and instead of allowing the market to develop and operators to openly compete according to consumer preferences.

The Chamber of Commerce argued that price fixing is not a viable solution to the complex issue of inflation. Such a move will not yield the desired systematic control of increasing costs because it does not address the root causes of inflation.

Similarly, the Chamber of SMEs opposed the initiative. The food sector is not the only one that has been impacted by inflation, and therefore singling it out is unfair. The government should think of long-term plans to protect Malta from inflationary pressures coming from abroad and therefore strengthen local production. Messing with the free market will have its repercussions, the Chamber of SMEs said.

In other words, what both chambers are saying is that what the government did is just a short-term solution and, in the long term, will have its own negative effect too.

What the two chambers did not say – but probably thought – is that what the government has done is a political move to be seen to be doing something about the rising cost of living a few months before the Maltese are set to vote to elect their representatives on the European Parliament and on local councils. Inflation was much higher last year but the government did nothing about it. So why the urge to reduce prices now? The answer is that an election is round the corner.

What was also not said – but many are thinking – is that while so much publicity is being given to this agreement related to 400 products, it is likely that the prices of other products is inflated to make up for the lack of income from the products on the list.

Time will tell what the effects of this political stunt will be.