Should prices drop?


Should prices drop or should Malaysia's 5th Prime Minister Badawi take lessons in economics. Well, maybe not, since during his studying days he had failed to a get into economics school and took up Bachelor of Arts (Islamic Studies) in Universiti Malaya instead.

Prices of consumer goods are normally sticky downward- meaning when they go up, it is hard for them to come down if at all, unless there's law enforcement or self-regulation of prices amongst good corporate citizen hypermarket companies. The impact of reduced fuel prices needs to weave its way through the economy before the man-in-the-street notices a drop in price of Maggi Mee or Nestle milk, for instance. Even so, it is difficult to expect prices of consumer goods to fall back to the same levels within a short period of time. Give it at least 6 months.

Below: Red line show f&b prices still trending up. Black and green line 
shows CPI and non-food items, respectively, doing an about-turn.

Wages, for one, do not fall after they have been raised. Imagine your boss coming up to you, asking for a reduction in salary because price of crude oil is now USD67 down from a previous high when he adjusted your salary upwards. Electricity tariffs for one, do not fall either (it doesn't fall because Tenaga does not allow it!!). Besides raw material costs, wages and utility expenses are the highest cost components for the manufacturer- all three do not and have not fallen since the crude oil price slide because they simply can't in such a short period of time.

Therefore under Government and public pressure, traders and manufacturers will be compelled to take a cut in profit margins in order to reduce selling prices of goods. But heck, consumer goods are end goods- what about items which affect production costs such as electricty and transport? The Government should look upward stream and compel Tenaga and freight forwarders/ haulier companies to reduce prices because they are the big obstacles to price reduction.

Anyway, I'm still waiting for my 80 sen-a-piece roti canai to materialize.

2 comments:

  1. This PM is really out of tune... What is SHOULD and what is REALITY

    When fuel prices go up... he indicated that prices of goods should not go up.. because it constitutes only a small % of the cost.. but he failed to realize that payroll constitute a huge portion of cost.. therefore cost go up!

    So after this few rounds of petrol price reduction, he says that prices should come down.. and when it did not.. they pinned the hypermarts to reduce price.."symbolically". But even when these hypermarts reduce prices... Malaysians do eat out often, not because its fashionable but out of necessity.. does he for one moment think that price of food will go down?

    err or the sidenote.. I thought Roti Canai now is 80sen...no?

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