No to price control in Jamaica
AT least one economist and several business people say they would not support any attempts by the Government to set price ceilings on basic consumer items as a means of helping to cushion runaway prices as have been implemented in some countries in the region.
Wayne Chen, chairman of Petrojam and Super Plus Food Stores, told the Business Observer, “History has proven that price controls do not work in Jamaica. Price controls for basic commodities didn’t work well — creating persistent shortages. They were removed in the early 1990s, after 20 years, as part of the economic liberalisation and market competition has kept supplies and prices in proper order since.”
Chen noted, “Price rises now are due to global issues including supply chain disruptions mostly. Inflation in Jamaica inched into double digits briefly, but is back down, so it seems that the Bank of Jamaica (BOJ) is managing [the fight against inflation] well. Price controls are not the way to go. I lived and did business through the entire period. I recall regular checks from price inspectors and ongoing struggle to source basic supplies.”
His view was supported by economist Dr Adrian Stokes who said he believes price controls “are usually very inefficient tools to achieve any economic outcome. Controls that seek to limit price increases usually end with a shortage and a rampant ‘shadow’ or black market.”
He indicated that monetary policy would be a better tool to help consumers.
Stokes stated: “I’ve been cautioning the BOJ for the better part of a year to be very careful with interest rate increases, because while inflation is really bad and we should fight it vigorously, the nature of the inflation is important to determine how to respond.”
Stokes explained, “Jamaica’s inflation is largely supply-side driven and has been falling in tandem with the reduction in global commodity prices, not due to any increase in local interest rates. The good news for Jamaica is that we have some fiscal space to implement measures to aid the most vulnerable in the society. The not so good news is that the fiscal space may not be enough if the local interest rate increases lead to a material reduction in output next year.
Manufacturer Gary “Butch” Hendrickson was equally against the notion of price ceilings in Jamaica. He commented, “Respective administrations tried price controls. They didn’t work, in my opinion.”
“What goods would you put price controls on? How would you maintain the input costs of these goods?” he asked rhetorically.
Price controls in the Caribbean
As multiple crises continue to impact inflation globally, countries in the region have been putting measures in place to cushion the impact on consumers.
At the end of October, the Government in The Bahamas placed temporary price control measures on 38 key staples including eggs, bread and sanitary towels.
Prime Minister Philip Davis said the measures were aimed at tackling the effects of rising price pressures globally. The controls limited price increases to 15 per cent for wholesalers and 25 per cent for retailers, and took effect from Monday, October 31. The measure is expected to last for six months.
The Tribune, a Bahamas newspaper, reported that food retailers had expressed the view that the country “is becoming a dictatorship” after the Government sought to expand the price control regime “without industry consultation”.
Davis also announced the first minimum wage hike since 2015 to $260 a week from $210 (B$1 – US$1).
In Barbados, controls were placed on petroleum products mid-year. Prime Minister Mia Mottley also said she was considering drugs, but the local association of pharmacists pointed out that the majority of pharmaceuticals dispensed — 70 to 75 per cent — are under the Barbados Drug Service, where they are already under price control.
Barbados Today reporter Marlon Madden quoting Trinidad-based economist Marla Dukharan wrote, “putting price controls in place and raising interest rates in line with the international community will not solve the rising inflation problem affecting Barbados.”
He noted a public survey by the Central Bank of Barbados showed that 78 per cent of individuals have significantly changed their spending habits as a result of increase in prices, and 40 per cent wants an introduction of price controls.
Social safety net better than price controls
In Jamaica, president of the Private Sector Organisation of Jamaica (PSOJ) Keith Duncan stated that the enhancement of the social safety net was a sufficient approach to the current inflation challenge.
He told the Business Observer, quoting from his recent EPOC address, “The GOJ has taken a targeted approach to providing support to vulnerable groups that have been impacted by higher energy prices and higher inflation rates than projected due to the overhang from the COVID-19 pandemic and the continued Russia/Ukraine conflict. Dr Nigel Clarke in his closing budget presentation of 2022/23, announced $3.5 billion support to vulnerable groups, inclusive of $750 million to food assistance programmes, $600 million to transport operators, and $2 billion to the GOJ energy co-pay subsidy. On July 5, 2022, the minister of finance announced $3.8 billion of expenditures, of which $2.7 billion of new expenditure targeted vulnerable groups.”
Duncan told the Business Observer, “I am aligned with the targeted policy response of the minister of finance and should there be increased fiscal space resources should be targeted at the most vulnerable of our citizens.”
Jamaica Manufacturers and Exporters Association (JMEA) head John Mahfood concluded, “I understand that many Jamaican people are finding it very difficult right now due to the significant price increases while salaries and income generally have not increased. The Government must find a way of directly helping the people who are truly in need. They did this for a while with a subsidy on electricity for small households but they have now stopped it.”
He stated: “I do not believe in price controls for a few reasons. Other than gas, water supply and JUTC which are government controlled, everything else that people depend on are supplied by individuals and companies. It is unfair to ask these people to hold prices when they cannot control the prices of the items that they buy as raw materials. This will lead to losses for them. Think of NWC and JUTC which are subject to price controls. They are losing a lot of money and cannot invest in buses and water supply equipment. Price controls are very broad and go to everyone and not just the needy.
Mahfood stated, “We are in a free market system and this is not the environment for selected price controls and finally, it will lead to shortages because companies will not want to produce items at a loss.”