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Inflation may be higher than official measure – Makhlouf

The Governor of the Central Bank has said price inflation experienced by households may be higher than what is officially measured.

Gabriel Makhlouf also said that Covid-19 has highlighted the impact of globalised supply chains, digitalisation and the “interplay between fiscal and monetary policy”.

The Central Bank Governor made his comments during an online speech hosted by the Institute for International and European Affairs.

Governor Makhlouf said the composition of the goods baskets, which make up inflation statistics, are not updated during a calendar year.

Covid-19 has had significant impacts on the cost and quantities of goods and services purchased by consumers, he said, referencing the stockpiling early in the pandemic of food and sanitisers and the decline in the purchase of services, such as dining.

He said the Central Bank last looked at the methods used in measuring inflation back in 2003 and that it intended to re-examine them in the light of Covid.

The Governor also encouraged people to become involved in the European Central Bank’s review of monetary policy and price stability.

Mr Makhlouf also said the pandemic has seen a dramatic increase in the use of payment cards.

He noted the impact of technology in enabling many people to continue to work from home.

He said that while “digitalisation” will have implications for the labour market, but added that it was unclear why productivity has remained “so lacklustre” given the impact of digitalisation.

Banks here will need to start thinking about restructuring loans if borrowers need assistance beyond six-month repayment payment breaks due to expire in the coming weeks, Mr Makhlouf also said today.

“There are bound to be more people in a distressed debt situation, we need to avoid that almost becoming a systemic problem,” the Central Bank boss said.

“That’s why we would be encouraging borrowers to engage with their lenders if they think they are going to have a long-term problem,” he added.

Mr Makhlouf added that it would be wise for firms to plan on the basis that the UK will not strike a trade deal with the European Union as the strained talks of the last week has highlighted that “a lot of us don’t know what’s going on” and what may or may not ultimately be agreed.

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