More effective policy needed to contain transfer impact between CPI and PPI

 

There is a need for more effective supply management policy to contain the transfer of impact between the Consumer Price Index (CPI) and Producer Price Index (PPI).

In the Economic Outlook 2021 report released today, the Finance Ministry said analysis has indicated the existence of a bidirectional relationship between the CPI and PPI.

"The findings indicated that the time taken for prices to adjust to long-run equilibrium varies between both price indices, implying there are imperfections in the market," it said.

Based on the findings, it said the lengthy downward adjustment of the PPI is a primary concern in Malaysia.

Therefore, the ministry said efforts should be focused on addressing this issue which, in turn, will contribute to a lower cost of doing business and reduce the pass-through effect.

Based on the analysis, the ministry said the downward reversion of the CPI to its long-run equilibrium will take approximately 9.1 months compared to the PPI at about 15.5 months.

"Lowering barriers to entry for new firms, especially small and medium enterprises, will increase the total number of domestic producers while ensuring a highly competitive market environment.

"It is also imperative to strengthen market competition and enhance domestic production capacity to increase aggregate supply," it said.

In addition, the report stated that the existing rules and regulations could be strengthened and strictly enforced.

This, it said, is to prevent anti-competitive practices and ensure the prices of essential goods remain reasonable for consumers.

- Bernama