Malaysia: Tough year ahead

Prices of crude oil and of agricultural commodities have soared, leading to higher international prices for petrol, cooking oil, bread, corn and even rice. Prices for almost all of these products are controlled by the Government, a legacy structure from many years back.

It worked well when prices of food commodities were less volatile and it was then possible for the Government to smoothen out prices.

Now, the world faces record prices for food commodities.
It is costing the Government billions of ringgit to hold prices at the old levels. Besides being costly, it is also inefficient because the Government is unwittingly also subsidising consumers in Singapore and Thailand who buy these products here.

In market economies, prices of most products are allowed to float at international prices.

Even the former communist countries gave up trying to suppress the price mechanism that determines the supply of goods.

As prices of “essential goods” have been held down during this entire boom cycle, it would be painful to make an instant adjustment to international prices.

It would be necessary, however, to gradually allow prices to float to international levels.

One of the price adjustments that consumers are concerned about is the price of petrol.

One way to soften the blow when petrol subsidies are gradually removed is to also gradually reduce the high taxes on cars.

The Star