The question of inflation has received a great deal of attention in recent months, eliciting at times an almost emotional pitch.
Many of the issues that have been raised and the solutions suggested are reminiscent of discussions that have taken place in the past.
The minister of economic affairs has been concerned about the on-going price increases. His concern has not always been received with enthusiasm. Nor has the spirit in which he has made his statements been accepted with generosity.
There are various dimensions to the rising prices which have raged on for almost a year.
It is best to give a little background.
There are three components that stand out in the rise in CPI. Food and non-alcoholic beverages registered a 6.8% increase in December 2022. The other significant component came from restaurants and hotels (an increase of 7.4%).
Transport was another big contributor at 4.9% (5% in November 2022). To a lesser extent prices of items related to household maintenance, such as furnishings and household equipment, was cause for concern since it went up by 3.7%.
Two items stand out – food and transport – simply because their consumption is unavoidable. Some food sub-groups have gone up considerably.
Among them are rice and bread (7.0%), meat (7.8%), milk and eggs (7.1%). Fruits, and sugar, jam, honey and chocolates registered less alarming price increases in December 2022.
For the large majority of people, grains and cereals, meat, fruits and dairy products are an inalienable part of their daily food intake, representing the basis for their nutritional quality.
It would be unacceptable to suggest that people omit these food categories. It would be intolerable to eliminate rice from the meals of most people, although bodybuilders might recommend periods of carbohydrate cutting.
The rise in prices affects some groups of people more than others. Those in urban areas bear the brunt of the price increases (4%), while it is less of a problem for those in rural areas, where prices went up by 2.8% in December 2022.
Eating at home is no longer cheap with prices having gone up by almost 5%. But eating out of the home is exorbitant since prices for food at eateries and restaurants have gone up by close to 10%.
This is the background to the inflation story. What can we make of these facts?
First, there is the element of choice and substitutability among commodities. If a consumer finds one type of fish expensive, he can instead consume another variety. But what if the cheapest form of animal protein is expensive? That would put the poorer households in a disadvantageous situation.
One option – and an extreme one – is, of course, to turn vegetarian. To suggest such an option is likely to rub salt into the wound. It would be an insensitive suggestion; and is unlikely to be received kindly.
A similar problem of choice arises with regard to eating out. Many working couples, after a long drive back home after work, or after a long day in the office, will not be inclined to spend an extra hour cooking dinner. The alternative then is to dine at an eatery or restaurant. As we have seen, the cost of doing so has risen tremendously.
Faced with the option of spending on increasingly expensive dinners, households could switch to instant noodles or rice and soy sauce – both of which are nutritionally unfavourable choices.
Indeed, this is what households might end up having to do. Such a switch in choices cannot be interpreted as boycotting eateries or warongs, but as exercising the unhappy choice of self-deprivation.
There is a difference between boycotting the neighbourhood grocery shop that sells liquor, and ‘boycotting’ eateries because they are expensive. The latter implies inflicting self-deprivation on oneself whereas the earlier imposes pressure on the shop.
There is a whole chain of activities that results in restaurants increasing their prices. This extends, for example, from the process of cultivating vegetables, to harvesting and selling them to middlemen, to the distribution of these vegetables, right up to packing and selling them to restaurant owners.
This applies to the supply of eggs, chicken and other food items. Everything from fertilisers, to animal feed, to logistics operations and fuel costs come into play before the item appears in an edible form at the restaurant table. The price for a particular dish is the sum of all the activities involved, and their costs.
We would, thus, need to examine all the points along the supply chain and attempt to remedy shortcomings and constraints.
It would be quite a different story if, for instance, the restaurant owners’ association, as a result of collusion among its members, decides to raise the price of the food sold at eateries.
It could be the case that poultry farms are colluding to raise the price of eggs. But before we come to that conclusion, we would have to investigate the situation before deciding that there is evidence of anti-competitive behaviour – a matter for competition authorities.
The question of food security has been ablaze for a while. It is not a case of a jack-in-the-box that has popped up without notice.
The supply constraints have to be quickly addressed. Possible solutions could possibly include short-term subsidies for fertilisers and animal feed; encouraging farmers’ cooperatives to take on the role of collecting produce and distributing it; relaxing import constraints, at least temporarily; and relaxing the intake of foreign labour.
At some point it will be useful to consider reviving the agriculture sector. It is time to introduce technologically sophisticated production methods. But more immediately, the production of vegetables and poultry has to be stepped up.
Any plans that the government has to nip inflation should be quickly revealed. There is no point in keeping these strategies close to the chest, waiting to unveil them on some auspicious day. The faster they are shared, the better: confidence has to be restored and inflationary expectations dampened without delay.
At any rate, some action has to be taken, and it cannot come in the form of blaming the victim; in this case the hapless households who happen to be living in urban areas, who have to consume rice and bread, some meat, along with milk and eggs, and who often have little choice but to eat away from home. - FMT
The views expressed are those of the writer and do not necessarily reflect those of MMKtT.
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