Price control not a good measure to address rising living cost

by S BIRRUNTHA / pic by MUHD AMIN NAHARUL

THE surge in consumer demand as Malaysia reopens tourism and social activities has contributed to supply chain shortages and rise in prices for items such as food and beverage.

However, economists believed that the implementation of price controls is not a good measure to reduce price hikes during a trying period.

Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said typically, subsidies and price control will be used to address the rise of living costs, however, the success rate has not been that favourable.

He noted that the rising living cost is a universal problem which has been affecting the economy almost persistently.

“Perhaps, it is high time that we should relook at the present strategy. The way I see it, allowing the competitive market forces as the main driver to determine the price level would be the right thing to do.

“While this can be seen as very academic, we need to really find a holistic way of addressing the problems,” he told The Malaysian Reserve.

Mohd Afzanizam said in reality, the government has to look into multiple factors in terms of implementing short- and medium-term measures to help mitigate the cost pressures and inflation induced by supply constraints and the increases in the prices of goods and services.

He emphasised that it is important to first look at how the market can be efficient.

“While supply of goods and services will always be in the equation, we also need to focus on how prices are being monitored, so that we can pinpoint the pressure point that creates the imbalances.

“It could come from malpractices among the businesses such as hoarding, price manipulation and others,” he noted.

Mohd Afzanizam said the government must also ensure a continuous capacity building programme, particularly in terms of education and infrastructure building. This would help to improve the income level, which then can help to improve consumer’s purchasing power.

He said financial literacy is also an equally important aspect, as this will determine whether a person will have a reasonable level of savings which can act as a shock absorber, especially during economic recession.

“In a nutshell, it is a multipronged strategy when addressing issues surrounding inflation and cost of living.”

Centre for Market Education (CME) CEO Dr Carmelo Ferlito concurred that price controls are not the way to go to address inflationary pressures.

He noted that they will only worsen the situation by creating less incentive to produce and therefore diminishing supply and keeping the inflationary tendencies high, impeding supply readjustment which is very much needed to bring the economy back on track.

To address inflationary pressures, Ferlito said nothing much can be done in the short run to tackle this component of inflation, which is the most serious and threatening one.

“To raise interest rates now will only make things worse, as we need investments and confidence to rebalance the supply chain. The only way to face this is for governments worldwide to embark on gradual, albeit painful, programmes of spending cuts,” he said in a statement.

Ferlito highlighted that it is also important to recognise that two years of lockdowns have forced many businesses to scale down their operations.

He said while it is easy and fast to scale down or cease operations, it requires much more time to scale up again.

Scaling up needs not only financial resources, but first and foremost confidence in the future, a trust that new investments will not be frustrated by new lockdowns.

According to Ferlito, some of the implementable measures that the government can consider are stronger communication on no-lockdown commitment, paired with investments in intensive care unit beds, which seems to be the critical element in lockdown decisions.

He added that the government should reopen the market to foreign workers, to ease the labour shortage which is very much felt in the F&B, tourism, manufacturing and agriculture industries.

He also suggested that the government look into implementing free-trade agreements and special commercial corridors to ensure that Malaysia has access to a supply of products which are now in shortage and that contribute to pushing up agriculture prices.

“It is clear that what we need is, again, less government intervention and more trust in market forces, rediscovering the importance of confidence, expectations, labour mobility and international trade,” he stressed.

Serious concerns have emerged on the rising prices of basic food items such as chicken, eggs and vegetables, with the government urged to act on the issue.

According to Ferlito, CME had rung the alarm bell on inflation in March and repeated a similar warning just before the tabling of Budget 2022.