Experts call for supply-side push in 13MP to strengthen market efficiency

New Straits Times

2 days ago

KUALA LUMPUR: The 13th Malaysia Plan (13MP) should place greater emphasis on addressing supply-side challenges to better manage the rising cost of living, economists said.
They called for broader structural reforms to enhance market efficiency and ensure that inflation management efforts provide real relief for consumers.
Universiti Malaya International Institute of Public Policy and Management adjunct professor Tan Sri Dr Sulaiman Mahbob said that although the official inflation rate appears low, prices remain high due to structural factors triggered during the Covid-19 pandemic.
"Prices increased during the pandemic and became embedded in the system," he said on a programme titled 13th Malaysia Plan: What it means for you and the nation, broadcast live on NST Online and Berita Harian digital platforms.
"Even though inflation is now low, the cost of goods has not decreased because those higher prices are already built into the final products we consume."
Sulaiman pointed out that the depreciation of the ringgit against the US dollar, driven by rising interest rates in the United States, has also contributed to higher prices for imported goods.
He explained that monetary policy typically addresses inflation from the demand side through interest rate adjustments or exchange rate management, but the supply side is often overlooked.
"For example, the food industry faces its own set of structural issues. That is why we need to promote modern farming to boost production and help bring prices down," he said.
Sulaiman added that increasing production could lead to stock accumulation, which would eventually help ease prices.
However, he noted that in sectors dominated by monopolies or cartels, such benefits are often undermined by market distortions.
"In Malaysia, there are monopolies, collusion and cartels. These imperfections prevent the market from functioning efficiently and contribute to persistently high prices," he said.
He stressed that tackling the cost of living requires a more balanced approach that includes both demand and supply-side reforms, especially in food and other essential goods.
He also urged policymakers to go beyond monetary tools and consider reforms that strengthen production capacity and market competitiveness, particularly in sectors that affect everyday living costs.
Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said that in many cases, producers or businesses have little incentive to reduce prices, even after pandemic-related pressures have subsided.
"This is the typical behaviour of firms or producers. They may think, why should I lower the price? Covid-19 is over, flight ticket prices have come down, but if I keep my price the same, people will still buy. Even if I raise it slightly, they will still buy.
"So, at the business or export level, there is no push to reduce prices," he said.
In view of this, Afzanizam said the government must play a role in injecting more competition into the market to drive prices down and expand consumer choice.
"For instance, we used to rely solely on Touch 'n Go for toll payments. Now, other cards are accepted as well. That is an example of how breaking a monopoly can make the market more dynamic. The same principle can be applied to other sectors," he said.
He added that increasing competition would help make prices more flexible and more responsive to actual production costs and consumer demand.
He noted that, at present, prices tend to remain rigid and continue to rise despite improvements in the broader economic environment.