PETALING JAYA: Price controls and subsidies should be used as a temporary measure to curb the negative effects of price shocks and enable consumers and producers to adjust smoothly to the supply-demand imbalance, say economists.
Malaysian Economic Association deputy president Prof Dr Yeah Kim Leng said keeping prices low and stable through controls and subsidies has to be weighed against the need to ensure adequate and efficient supply, which is harder to manage if there are distorted markets and prices.
“Prolonged subsidies and price deviations from equilibrium market prices will eventually result in under-investment and production, thereby worsening the supply situation and creating shortages and encouraging blackmarket activities,” said the Sunway University economics professor.
“Raising production or supply efficiency and productivity and ensuring competitive markets are the keys to keeping prices of essential goods and services low, while subsidies and price controls should be used sparingly when markets are disrupted or shocked, as in the recent case with chicken and eggs.”
(Equilibrium is when market supply and demand balance each other, leading to stable prices.)
Malaysia University Science and Technology economist Prof Emeritus Dr Barjoyai Bardai said that after the 3 sen reduction in egg prices on June 17, making other essential items cheaper might be challenging.
“To reduce prices of any item is difficult and challenging, so is stabilising the price because Malaysia practises an open economy.
“We also import 80% of our needs and the most effective way to address this is by raising the wages of the working class,” he said when asked if there are any immediate measures the government could take following the egg subsidy that came after the diesel subsidy rationalisation was enforced.
The economist said families would only save about RM8.50 a year or 67 sen per month from the egg subsidy, hence contributing to minimal savings.
Prof Barjoyai also called for a comprehensive strategy to improve overall well-being.
“Currently, the government provides RM1,000 in living assistance to needy families and saves RM4bil from targeted diesel subsidies, with plans to add an additional RM200 subsidy per family.
“This assistance is crucial, especially for the lower to upper middle class, which makes up nearly 30% of the population,” he added.
Federation of Malaysian Consumers Associations (Fomca) chief executive Saravanan Thambirajah said there must be improvements in food security, which is crucial to boosting domestic agriculture for produce such as padi, vegetables and onions.
“Malaysia’s heavy reliance on food imports, costing RM60bil to RM80bil annually, means that any supply disruption from countries like Vietnam, Thailand or India could significantly impact local prices,” he said.
“Price fluctuations are driven by supply and demand; increasing supply can lower prices. Addressing business costs such as electricity and imported animal feed can help reduce operational expenses, benefiting consumers by preventing price hikes.”
