Curbing the rising prices of food items

 

Malaysia inflation five year

PETALING JAYA: A strict price ceiling mechanism is necessary to contain the sharp rise in vegetable and poultry prices, according to several experts.

Over the past two weeks, some vegetables had seen more than 100% increase in prices, as reported by the Consumers’ Association of Penang (CAP). Local news outlets have also observed an increase in chicken and egg prices since October.

If the price surge is left unaddressed, it would have a negative spillover effect on other items, as food manufacturers and restaurants pass on the additional costs to the consumers.

Speaking with StarBiz, CAP president Mohideen Abdul Kadeer called for a price control of certain essential products to be implemented throughout the year, and not limited to during the festive seasons.

He also urged the government to investigate the different vegetable prices across the states.

“We expect price pressures to remain moderate in 2022, given the spare capacity in our economy,” said Bank Negara governor Tan Sri Nor Shamsiah Mohd Yunus

“Real prices from the local markets showed that more than 10 types of commonly consumed vegetables have seen a sharp increase in prices.

“The officers must do frequent price monitoring on the ground. In Penang, I have not seen them doing their rounds for the past six months,” he said.

Mohideen urged the Federal Agricultural Marketing Authority (Fama) to buy more fresh produce from farmers and sell them directly to the consumers.

“This would reduce the high middle-man costs. Fama is not doing enough at the moment,” he said.

Socio-Economic Research Centre executive director Lee Heng Guie agreed on the need for price controls.

However, he said this should be a stop gap measure, along with the lowering of tariffs and import duties on consumable items, including intermediate inputs used in the production of final goods.

Malaysia needs several interim, short and medium-term measures to help mitigate the cost pressures and inflation induced by the scarring effects of the Covid-19 pandemic, according to Lee.

Among the effects are supply constraints, rising energy and food prices, inflated shipping, logistics, delivery and raw material costs, as well as the weak ringgit.

Carmelo Ferlito.

“In the farming sector, the high cost of fertilisers and shortage of workers as well as the weather disruption have caused a substantial increase in the prices of agricultural produce.

“The government can explore importing more agricultural produce to overcome the shortage in supplies. Ease the shortage of foreign workers immediately to minimise the disruption on production.”

He said while the Consumer Price Index showed that inflation has moderated, the reality is that the cost of living has risen during the pandemic.

“The prolonged pandemic-induced supply disruptions together with increased input costs have upended the economy, leading to the increase in prices of goods and services as well as a higher cost of living for the low income households,” said Lee.

Despite complaints of rising prices, Bank Negara recently said inflation remained tame.

“We are also not seeing any indication of a broad-based price increase or excessive wage pressures.

“We expect price pressures to remain moderate in 2022, given the spare capacity in our economy,” said Bank Negara governor Tan Sri Nor Shamsiah Mohd Yunus recently.

Bank Negara had forecast headline inflation to average between 2% and 3% in 2021.

Core inflation, which excludes items whose price fluctuations are transitory such as most volatile items of fresh food, is expected to average below 1% for the year.

As for 2022, the headline inflation is expected at 2.1%.

Centre for Market Education (CME) CEO Dr Carmelo Ferlito (pic below) disagreed with the introduction of price ceilings to address the inflationary pressure, saying that it would only make the situation worse.

Meanwhile, Sunway University economics professor Yeah Kim Leng said price ceilings would cause negative consequences if set too low.

Ferlito pointed out that price ceilings would create less incentives to produce and therefore, diminish supply and keep the inflationary tendencies high.

Meanwhile, Sunway University economics professor Yeah Kim Leng said price ceilings would cause negative consequences if set too low.

“These include disincentives to farmers to increase production or supply, the creation of artificial shortages and diversion of produce to consumers who can pay above the ceiling prices,” he said.

According to Ferlito and Yeah, the best way to deal with the higher prices is by allowing market forces to operate more efficiently, with less government intervention.



At the same time, there is a need to address possible market failures such as the existence of cartels, hoarding or lack of competition.

“While mindful of the greater impact of rising inflation on the lower income group, the government could use more effective tools such as the provision of direct income support and food subsidies rather than intervening in the market dynamics of products and prices.

“Consumers should be provided with cheaper substitutes or alternative products, and market competition should be fostered by encouraging new sources of supplies,” said Yeah.

In addressing inflationary pressure, it is crucial for the government to identify where the supply shocks are and ensure adequate provision of goods to rebalance supply with demand, according to Ferlito.

“The best way to do this is by pushing for freer international trade.

“Additionally, labour shortages need to be addressed, Malaysia can’t stand any longer without foreign workers,” he told StarBiz.

Ferlito said the supply shock-driven inflationary pressure could only be solved if producers regain confidence to scale up their operations.

He added that many producers were forced to scale down their operations due to the past lockdowns.

However, for the producers to scale up again, it would require more time and resources.

“If the producers expect that lockdowns may happen, they will delay the scaling up.

“Businesses will not invest again unless they are sure that the shifts in policy are over for good,” added Ferlito. - Star