Monday, July 4, 2022

Economists caution against govt intervention to tackle soaring prices

They say this will only lead to market inefficiency.

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Economists have sounded a note of caution over calls for government intervention in the marketplace, even as consumers struggle to cope with ballooning prices for a wide range of goods and services, from e-hailing rides to chicken.

Complaints about the increase in price of raw goods began as far back as two months ago, during the festive season when the cost of food began to rise along with that of flight tickets for Malaysians looking to return to their home towns.

More recently, public scrutiny has been on the price of chicken and the charges imposed by e-hailing companies including Grab.

At some markets, chicken prices rose to as high as RM12 per kg, while Grab rides in several instances cost RM40 during peak hour compared to RM17 during normal periods for journeys of the same distance.

Calls for the government to impose price controls are nothing new.

Every festive season, the government through the domestic trade and consumer affairs ministry sets ceiling prices for certain goods to prevent consumers from being charged too much.

But economists who spoke to MalaysiaNow said price controls are not necessarily the best way to tackle the problem.

Barjoyai Bardai said any form of intervention, including the implementation of price controls, would lead to inefficiency in the market.

“Take chicken, for example,” Barjoyai, of Universiti Tun Abdul Razak, said.

“We try to control the price of chicken, but it is very easily manipulated when producers withhold supply from the market – prices will soar.”

Meanwhile, on the black market, consumers will get chicken regardless of the price “because they need the commodity”, he added.

Adillah Zafirah of Iris Institute agreed.

She said the black market would only grow with the implementation of price controls, even though these would protect consumers from being exploited by producers.

“For effective and sustainable government intervention, you need to understand the supply and demand in the market,” she said.

“In terms of the supply of chicken, this has been a problem for a long time. The government should actually play a role in the entire supply chain system.”

The government on May 18 said it had agreed to dispense with approved permit requirements for food imports in order to allow more companies to bring in food from outside of the country.

But Barjoyai said tackling the matter from this perspective was a short-term measure as the price of goods would rise again due to the exchange rate.

The high prices of flight tickets, meanwhile, could be due to a shortage of industry players offering that particular service.

“If we opened the market to outside companies, there might be enough competition to push ticket prices down,” he said.

“Of course, local companies will claim that such a move would kill them, but the issue is also whether they want to exploit their customers.”

The same would apply to the e-hailing industry, where Grab holds a near monopoly.

Grab had said that the increase in prices was due to a spike in demand and a lack of drivers to meet it.

Adillah said the most sustainable solution would be to boost the supply in the market.

Barjoyai meanwhile said the problem lay with what he described as the depth of the industry.

“An industry that is too shallow will cause it to be controlled by only a handful of cartels,” he said.

“How can we allow 12 companies to control the supply of chicken throughout the country? This is very worrying.”

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