Inflation reached 2% in June, Central Bank Economic Update shows

Annual inflation edged upward in June and now stands at 2%, the upper limit set by the European Central Bank for stability in the Eurozone.

The Central Bank's Economic Update for August showed that inflation measured by the Harmonised Index of Consumer Prices (HICP) reached 2% in June, up from 1.7% a month earlier.

Inflation is the rate at which the cost of goods and services increases, meaning that when inflation rises, consumers are able to buy less items with the same amount of money.

HICP is a metric used to measure consumer price inflation in the Eurozone and is calculated by measuring the change in the price of consumer goods and services by households.

The European Central Bank’s target for stability over the medium term in the Eurozone is a year-on-year increase in the (HICP) for the euro area of below, but close to, 2%.

Inflation was mainly driven by higher prices for tourism-related services

According to the Central Bank of Malta, the increase was mainly driven by higher prices for tourism-related services.

Services inflation, one of the main HICP subcomponents, “accelerated strongly” in June, particularly those related to tourism, the Central Bank said.

The report also states that food inflation experienced a marginal increase during June, “due to developments in processed foods like bread and cereals”. On the other hand, inflation within the non-energy industrial goods subcomponent eased further, while energy inflation remained unchanged. 

On the other hand, the Central Bank found that inflation as measured by the Retail Price Index (RPI), another metric for the cost affordability of items, continued to signal “contained price pressures” during June. Annual growth picked up marginally from 0.9% to 1.0% between May and June.

The report states that RPI inflation is currently being held back by annual falls in clothing and footwear prices.

The “contrasting developments” in the overall HICP and RPI inflation rates, it says, mainly reflect the exclusion of tourism services from the RPI basket. 

While both indices are compiled using a large and representative selection of more than 400 different goods and services, the RPI differs from the HICP in that surveys carried out to determine the RPI capture only private households. The HICP calculation, on the other hand, also includes institutional households, like retirement homes, and foreign visitors to Malta.