Is the controlled price shopping basket an effective measure against inflation?

Date:

In times of inflation, the state must develop efficient and fair redistributive policies to protect the most vulnerable. Price control is not, as the protection of some may be the lack of protection of others

Inflation is a symptom, not a disease. It indicates that there are imbalances in the economy that manifest themselves in a sustained rise in the price level. Therefore, it is necessary to find the causes that cause them and formulate appropriate policies to combat them.

A few days ago, it was proposed that the major distributors set caps on the prices of some essential products for consumption by Spanish families. This leads us to question whether price control is an effective measure to contain inflation and its effects.

The general increase in prices has a fundamental impact on those who have a fixed income in the short or medium term: wage earners, retirees, etc. Rising food prices have a particularly serious impact on the lowest income earners and the most vulnerable families, who make up most of their income. spend on purchasing essential products. These families will have to reduce their consumption basket in quantity or quality, with all the associated health risks.

For this reason, the idea of ​​setting the prices of a staple food basket is not so much to contain inflation as to protect the most vulnerable consumers from its negative effects.

1. Facilitating price fixing can be a behavior that is contrary to Article 1 of the Competition Defense Act (Law 15/2007). This law expressly prohibits companies from making price agreements (also known as collusion). Under this regulation, companies are obliged to make autonomous price decisions, avoiding mutual coordination. Facilitating agreements between major operators could set a dangerous precedent that, sooner or later, would harm consumers, as well as send uncertain signals in other markets.

2. This measure does not discriminate on the basis of income, ie it benefits all families and not just the most vulnerable. However, some of the vulnerable consumers would be excluded from the benefits, namely those who do not make their purchases in large stores. Think, for example, of the elderly, people with limited mobility or people who live in the countryside. It would also not benefit those who for health reasons or preferences do not consume all the products in the chosen basket.

3. The consequences of setting prices or limiting their increases lead to distortions in the markets with foreseeable (and unforeseen) consequences. Economic theory suggests that imposing a maximum price lower than the equilibrium price in a market will lead to a reduction in the supply or quality of products. Efforts to protect consumers against increases in rents have, for example, resulted in a decline in the number of rental properties or a lack of investment in maintenance (reduced quality).

4. It should be borne in mind that the main supermarket chains operating in Spain have recently achieved a significant degree of concentration, which also translates into greater purchasing power. Hundreds of products are sold in their branches. So, selecting a small basket of products at very low prices would probably not have a worrying effect on their bottom line. In many of these chains, offers and discounts are even part of the pricing strategy. The effect could even be nil if they compensate for these decreases with price increases of other products or with reductions in costs.

This measure could have a negative impact on other more vulnerable operators, such as farmers or small businesses.

The first because the purchasing power of large stores would allow them to push down the prices of the products in the shopping cart.

Secondly (bakeries, greengrocers, butchers, fishmongers…) because they would have to compete with the low-priced products of large areas.

Therefore, a price intervention must be studied very carefully and carefully measured the possible distortions it can cause in the markets.

This brings us to the need to examine the causes of the rise in food prices, in addition to the increase in energy and raw materials. And if there are indications that it is due to abuses or inefficiencies in the functioning of the food chain, the National Commission for Markets and Competition (CNMC) would be tasked with making recommendations or imposing sanctions.

Protecting vulnerable households is an obligation of any advanced society and the foundation of a modern welfare state. To this end, redistributive measures must be designed that are efficient (and fair) and flexible enough to respond quickly to unexpected setbacks.

Price control should not be considered one of them.

This article was published in ‘Het Gesprek’.

Source: La Verdad

LEAVE A REPLY

Please enter your comment!
Please enter your name here

Share post:

Subscribe

Popular

More like this
Related

Fight in Atlantic City – Aslan for UFC debut: “I’m ready, despite the pressure!”

The Viennese Ibo Aslan was only the second Austrian...

Fall into a ditch – Germany: Next serious accident involving a coach

Another serious bus accident occurred in Germany on Friday...

Patient mistaken – Prague hospital mistakenly performed an abortion

Incredible incident in a hospital in the Czech capital...