“In his weekly video blog, Minister for Finance Prof. Edward Scicluna discusses the concept of inflation and deflation, and how this affects Maltese and Gozitan households on a day-to-day basis in terms of how much they earn, and the worth of their savings over time.

Prof. Scicluna also notes that in those instances where inflation not only drops, but becomes negative, what emerges is a new phenomenon, known as ‘deflation’.

He explains that deflation as a phenomenon is giving leading economists and policy-makers considerable concern, as it can be equally damaging, if not more, than excessive inflation. He explains that this is because deflation can obstruct an economy from growing further, increase the ‘pressures’ on the debt, and discourages borrowing.

Prof. Scicluna further notes that another development is the manner in which the Central European Bank (ECB) has started paying a negative interest rate for funds deposited by European banks. This means that European Banks have to start having to pay to deposit funds with the CEB, instead of accumulating interest for funds deposited.

He notes that unfortunately given how the phenomenon of deflation emerged only recently, it is ‘uncharted territory’ for many European countries, that have yet to develop the tools to control it.

The Minister for Finance augured that the phenomenon of deflation does not happen in Malta, and explains that for the economy to keep growing and generating employment, inflation should remain positive but low.”

– Saturday, 21st June, 2014