PETALING JAYA: Consumers and businesses must be prepared to face high prices of goods until market forces stabilise, say economists.
The disrupted supply and demand of goods caused by the pandemic will take time to normalise, said Socio Economic Research Centre executive director Lee Heng Guie.
He said that the hike in prices did not happen overnight but is a phenomenon that has accumulated over the past two years.
“The reopening of the economy has led to high demand, which has affected the prices of raw materials, and energy and commodity prices, putting pressure on businesses’ production and cost margin,” he said.
Lee said this affected prices throughout the supply chain – from the producer to wholesaler and to the retailer.
“We can see that eateries have increased their prices at hawker stalls and restaurants.
“Businesses have no choice; because the increase is so significant, they can only partially absorb the cost and the rest is passed on to the customers,” he said.
Lee said businesses would need to be prepared for the continuous pressure on cost, while consumers would have to manage with inflation and a higher cost of living.
This is because prices of goods would likely remain high or even increase when businesses are confronted with additional costs, he said.
“The moment discounts such as electricity subsidy are over, businesses will have another round of increase in prices,” he cautioned, adding that other factors such as an increase in minimum wage or levy could further increase prices in the future.
“It all depends on how the factors are readjusted from cost revenue and model to cost margin,” he said.
Lee said short-term measures taken by the government such as allowing imports of certain goods and giving out subsidies to ease the pressure on the price increase may not serve as a permanent solution.
He suggested that prices should be left to increase without any price control, which will allow a drop in demand and a decrease in prices will follow.
“We have to allow demand to cool down or address the supply cost that is pushing the prices up,” he said.
Lee said the United States is also facing higher consumer inflation and are pressured into increasing interest rates.
“By increasing the cost of borrowing, it will cool down the demand and ease the inflation pressure,” he said, adding that prolonged high inflation will have a negative impact on both consumers and businesses.
Sunway University economist Prof Dr Yeah Kim Leng said the increase in prices of selected goods in the country is due to global and local factors.
“Globally, pandemic-related disruptions to production, logistics and supply chains together with the stronger-than-expected rebound in demand have accentuated global supply-demand imbalances.
“This has pushed up prices of imports particularly fuels, raw materials and intermediate inputs that are transmitted to higher prices of the affected consumer goods, particularly fuel-related and food items,” he said, adding that the weaker ringgit had also contributed to higher import prices.
Locally, Dr Yeah said supply disruptions due to labour shortages are not severe but predatory pricing and profiteering could have contributed to the large price mark-ups along the supply chain of selected items, especially food items.
He noted that most advanced economies, which previously faced deflationary pressure during the pre-pandemic period, are now grappling with the post-pandemic inflation that is surging far above their 2% inflation target.
He highlighted that while Malaysia’s year-on-year Consumer Price Index (CPI) rose by 2.9% in October, Europe’s inflation hit 4.1%, while the United Kingdom saw a 3.8% rise and 6.2% in the US.
Malaysia’s rise in inflation rate in October was largely due to an increase in transport costs as well as prices in other segments including housing, water, electricity, gas and other fuels, according to the Department of Statistics Malaysia.
For the period of January to October, the country’s CPI grew 2.3% on a year-on-year basis.
The Statistics Department said there was a double-digit increase of 11.3% in the transport group in October due to higher global oil prices, while the electricity, gas and other fuels subgroup hiked by 27.6% following the discontinuation of the electricity discount in September.
In resolving the high prices of goods, Dr Yeah urged for sound market-based policies and effective enforcement strategies to address inadequate or erratic food production, rising input costs, supply chain bottlenecks and opportunistic business behaviour.
He added that supply shocks affecting selected items may likely be temporary as supply-demand imbalances are resolved through producers and consumers adjusting to the price signals.
“Government intervention, meanwhile, should be focused on enhancing market competition, facilitating capacity-boosting investments and fostering efficiency and productivity improvements in all sectors of the economy, including the government delivery system,” he said.