Govt warns of bringing back price controls amid sticky prices ahead of polls

ECONOMYNEXT –The government will be compelled to bring back price controls on some essential commodities as most traders have failed to slash their prices in line with the government’s cost reduction of fuel, energy, gas, and transport, Trade Minister Nalin Fernando said.

The plan is now considered days after the island nation slashed the electricity cost by an average of 22.5 percent while gradually reducing the prices of cooking gas and fuel in the last two consecutive months.

Despite the price reductions, the cost of essential foods has still been the same as when the prices of fuel, gas, electricity, and transport were at their peak, consumers say.

President Ranil Wickremesinghe’s government is in the process of reducing the prices of energy sources to slash overall cost of living.

The move comes ahead of a presidential poll possibly in early October which the island nation’s Election Commission is expected to declare next week.

The government in the past failed to maintain stable prices for essential goods through the state-owned Consumer Affairs Authority (CAA) despite imposing price controls. Such moves have led to hoarding of commodities and increased prices.

“The Consumer Affairs Authority lost the way on how to address these issues,” Trade Minister Fernando told reporters at a media briefing in Colombo on Friday (19).

“So now we are in the final stage of amending the Act and changing the laws. We should be able to table the amendments in the parliament in the next two weeks,” he said.

Fernando said the government is being questioned by consumers and media on why it cannot reduce the price of essential goods despite prices of diesel, electricity, gas, and transport being slashed.

“This week I have decided to take crucial decisions. I will be calling on all traders’ associations in the coming week,” he said.

“If they don’t reduce the prices in line with the relief they have got from the price reductions, we are compelled to bring back control prices on some commodities.”

Goods usually go off the shelf and black markets are created due to government price controls which prevent a market clearing price from being established.

The CAA had earlier made eggs, tinned fish, dhal, and wheat flour disappear from shelves with its price controls.

Classical economists describe this problem as unintended consequences of state interventions.

One state intervention to give a special privilege to one set of economic players may require two or more interventions to solve negative fallouts.

“I am not a minister to go ahead with controlled prices. But, if they don’t pass the relief the government has given them, we will definitely take a decision on this. With that, I believe we will be able to bring down the prices,” Fernando said.

Sri Lanka decided to abandon price controls in October 2021 after they created shortages and led to black markets.

Fernando said unfair market practices including not reducing the prices of essential goods, increasing the prices when raw material prices are increasing, and sellers earning exorbitant profits unethically still prevail.