Govt Must Take A Proactive Role In The Supply Chain To Tackle Inflation

The recent spike in OPR has again sparked alarm bells again as BNM attempts to cool down the staggering demand for aggregate goods and services.

Many still consider if the hikes are necessary because it might be attributed to cost-push factors and not demand-pull situations. If the present problem is one of cost-push then raising interest rates would not do good as it is not because people have a lot of money in their hands.

Critics of OPR Hikes have voiced concerns that the present price hikes are attributed to increased prices which include fertiliser costs, scarcity due to the war, and logistical issues arising from countries reeling from the pandemic and further hikes are only likely to exacerbate the financial woes of businesses

Bank of Japan governor, Haruhiko Kuroda, conveniently comes to the rescue of this camp. On March 8, Kuroda declared that tightening monetary policy would not be used to deal with inflationary pressures that are driven by cost-push factors, more specifically due to soaring fuel costs.

But on the other hand, some economists have come to say that if the rates are not hiked, there could be a huge outflow of funds, and to avert such a situation BNM has to keep increasing the rates.

While the decision to tinker with interest rates was the correct policy prescription and if BNM policies are right would be left to be seen, the government must take proactive steps in ensuring that supply-side factors are also used in combating the raging scourge of inflation

Rising prices on account of constraints in supply factors and increases in input prices cannot be addressed by tinkering with exchange rates alone as it must be coupled with fiscal policy and holistic direct intervention in the economy. The government must take the lead through the intervention in supply chain factors and increase supply side factors.

Government must ensure greater surveillance in the supply chain factor and ensure that nobody in the supply chain is out to make excessive profits and impose penalties and fines if unscrupulous activities are being indulged along the chain.

It must come hard on cartels and monopolies which are responsible for increasing prices and find ways of dismantling the existing cartels.  It is time that the state ensures a greater role and responsibility in the management of the entire supply chain.

The late Royal Professor Ungku Aziz’s seminal work on poverty identified that middleman exploitation was one of the reasons that kept the farmers poor, however, any form of exploitation including excessive profiteering along the supply chain would result in increased prices for the consumers should also be considered exploitation and must be addressed accordingly.

In fact, any inefficiencies in the supply and distribution chain should also be considered a form of exploitation for the consumers and the government must proactively address the issue.

As part of these efforts, the government should galvanize cooperatives and synergize wholesalers and retailers into cooperatives that would allow bulk buying that would benefit the consumers.

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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