Government Needs To Proactively Tackle The Problem Of Inflation

With the economy starting to hum again after prolonged periods of lockdown in the world, another problem besieging Malaysia is inflationary pressures with policymakers grappling with how best to solve the problem.

While inflation is a situation of rising prices, policy prescriptions can only be accurate if the diagnosis of the problem is correct. The situation of rising prices is on account of constraints in supply factors and an increase in input prices and not because of an aggregate increase in the demand in the economy.

It would be pointless for Bank Negara Malaysia (BNM) to come out with policies of increasing interest rates or controlling money supply as the problem besieging us today is on account of increasing costs and increasing prices.

The government needs to address the present problems through direct intervention in supply chain factors and increasing the supply of input factors.

It is not just a Malaysian phenomenon but a global phenomenon on account of a production shortfall, increase in the price of outputs, and climate factors that have resulted in disruption in supply.

The looming inflation in the country is a global phenomenon that needs to be tackled through the government’s direct intervention in supply chain factors and increasing the supply of inputs.

The sudden surge in the prices of essential goods such as vegetables, poultry, and other food items is an example of this and affects the populace, particularly the low-income group.

Weather vicissitudes, disruption in supply factors in China, and high cost of fertilizers on account of high energy i.e. natural gas prices are the cause of the present predicament. Fresh vegetable prices in China surged by 30.6% in November from a year ago according to the National Bureau Of Statistics. The Food and Agriculture Organization of the United Nations said its International food price index jumped by 27.3% in November of last year to its highest since June 2011.

The government should seriously consider providing subsidies across the supply chain which includes the middlemen. This includes giving more grants to cover logistics costs, production feeds that should be subsidized by the government for a time period in order to ensure that the eventual consumer could afford to buy essential goods. 

In addition, it must ensure that the Ministry should employ more surveillance and enforcement officers who could ensure that there is nobody in the supply chain who is out to make excessive profits. The State must pro-actively intervene in this aspect of the supply chain by enforcing and imposing heavy penalties and fines.

The government must come hard on cartels and monopolies which are responsible for increasing prices and find ways of dismantling the existing cartels. It must also ensure that there are no kickbacks given to law-enforcement officials by middlemen. In short, the State should ensure tighter supervision and management of the entire supply chain.

The government should muster cooperatives to be at the forefront of combatting the “middlemen” and wholesalers who exploit their bargaining power to short-change farmers/produce. It should also synergize with other wholesalers and retail cooperatives – as part of the next stage of the supply chain – to ensure that the bulk purchasing power is maximized for the benefit of the consumer.

The government must also consider reducing tariffs on imported goods particularly essential goods that will ease pressures on consumer goods. Many essential items whose tariffs can be lifted will allow consumers to have goods at reasonable prices. 

In the long run, the government should look at ways of incrementally increasing the supply factors through IDigitalisation and smart farming which can help reduce costs and increase both yield and income. The advent of Big Data and the use of the Internet-of-Things (IoT) and automation to control and monitor the farming process from fertilization and irrigation which is combined as fertigation to pesticide spraying and harvesting will also reduce wastages and leakages whilst enhancing the quality of the output.

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