PETALING JAYA: Economists have lauded the government’s effort to implement flexible price ceilings to ensure optimal food security and a sustainable supply chain.
However, Economic Action Council (EAC) Secretariat and Ambank chief economist Dr Anthony Dass said the policy should be temporary.
“Having a flexible ceiling price prevents extraordinary increases in the prices of goods and services. It lowers prices for consumers and stops producers from charging exorbitant prices on their products.
“However, such a policy needs constant review. If we keep them too long, they often carry long-term disadvantages, such as shortages, extra charges, or lower quality products. There is also concern that such mechanisms could cause a deadweight loss to the economy, making it inefficient,” he said.
“They can artificially create shortages in the long run. When demand increases, prices increase to attract a higher level of production by suppliers. However, when prices are set artificially below the equilibrium point, they are low, demand is high and producers are unable to meet supply.
“For example, having price ceilings for RON97 would be an attempt to keep prices low for those who demand the product. But when the market price is not allowed to rise to the equilibrium level, quantity demanded exceeds quantity supplied, and thus a shortage occurs,” he added.
Bank Islam Malaysia Bhd chief economist Dr Afzanizam Abdul Rashid said the government should closely monitor the implementation of price ceilings and use effective price control mechanisms to serve the purpose.
“At the current juncture, price controls can be an effective means to control inflation because the sources of inflation are coming from the supply side.
“However, implementation has to be comprehensive, such as considering the entire supply chain process. The government has to look at the upstream, midstream and downstream of an industry so that the price control mechanism may not affect the downstream alone,” he said.
Meanwhile, Sunway University Economics Professor Dr Yeah Kim Leng said while setting a ceiling price was a good move, the government should not set it too far from reality, so that consumers and producers do not lose their surplus.
He cautioned that such a policy was only feasible for certain basic items, such as chicken, cooking oil, vegetables and other necessities that benefit the low-income population.
“Flexible prices mean going to basics and allowing for price adjustments according to market conditions. I think the government is reverting to the very fundamental mechanism of free markets.
“This flexible pricing is still subject to government control as it will set the ceiling price, which is better than having a fixed price since it allows adjustments for input and production cost,” he said.
“For fuel prices like RON97, the government will set the price. But now the government is thinking of bringing in targeted subsidies instead of ceiling prices. This means the B40 group will receive the subsidies but the only problem is the process of implementation. We can either look at it from a petrol card (option) or direct cash aid like the BRIM.”
