Food inflation

On the 18th March, the full HICP inflation figures for February 2024 were published by Eurostat

This time it grabbed much attention as February was the first month from when the government introduced the price-capping scheme on some food items. At this point, just to set the scene, some technical commentators had written that this price-capping scheme was needed as from Q3 2023 onwards there was a divergence in food inflation in Malta when compared to the Euro Area average, which meant that food importers and distributors were profiteering and hence the government needed to intervene. Some even went all the way to say that this was due to a market failure as competitive forces were not working well enough.

Another point to mention is that food prices are dropping all across Europe, hence this

Graph 3.

analysis is not based on whether food prices in Malta have dropped, but if the drop has reduced any divergence from the Euro Area average or not.

Now with the February HICP statistics out, we can see how the divergence between overall food prices in Malta and the Euro Area average has developed. As shown below the divergence experienced with regards the annual change in HICP for February (+4.2%) for All Food, is the same as experienced in December 2023, surpassing the variance recorded from August to November 2023. However, the deviation in February falls short of that seen in January (+5.7%).

However, the above Graph 1. is just an initial analysis, prompting a more thorough investigation to gain a comprehensive understanding of the situation. To do so let us first examine the divergence between the Euro Area average and Malta with regards the annual change in HICP

for February with regards Processed Food (excluding Alcohol & Tobacco). As shown below you will see that the divergence in February (+3.5%) was above the level experienced from August to December 2023, with only January having a higher divergence of 4.1%.

If we do the same and now examine the divergence between the Euro Area average and Malta with regards the annual change in HICP for February with regards Unprocessed Food, we see that the divergence in February (+3.1%) was above the divergence experienced from August to November 2023 and below the divergence experienced in December 2023 (+5.4%) and January (+6.5%).

The Graphs 2. and Graph 3. analysis seems to indicate that the overall food price changes in February for Unprocessed Food was a much greater contributor to reduce food inflation in Malta than processed food. For a more comprehensive understanding, please examine the detailed data below for specific popular food categories, which compare the Annual HICP rates of the Euro Area average and Malta from August 2023 to February.

The below figures outline that for the vast majority the divergence between the Euro Area average and Malta’s HICP annual rate of change per month has remained almost the same between August 2023 to February, with the exception of Coffee, Frozen Vegetables and Preserved Milk, which had a reduction in divergence in February. However, the real big reduction in divergence was in Fresh Vegetables. This explains why we earlier could see that the major contributor to the reduction in food inflation in Malta in February was Unprocessed Food.

Let's now observe how things will unfold in March. Nevertheless, for March, it's essential to consider the recent entry of a significant new discounted food retailer into the market, which is likely to have an impact. It will be intriguing to compare the HICP figures for March with those of February.

Finally, this column has always provided technical and independent analysis based on facts and official statistics. The aim of this column is to analyse the data objectively and present findings as they are revealed by the data itself.