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Our View: Very little the government can do to stop prices rising

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Our View: Very little the government can do to stop prices rising

Everyone is waiting to hear what the government plans to do about the rising prices that have hit living standards and do not look like falling any time soon. President Anastasiades held a meeting at the presidential palace on Friday at which it was decided ministry technocrats would look at ways of restricting the rises through reductions in VAT and look at the cost of certain targeted measures for low-income households.

There is only so much the government can do because the inflation is exogenous, caused by soaring energy prices and rising food prices exacerbated by supply chain problems caused by the pandemic. Car fuel prices will keep rising as will electricity rates and all the government can do is try to slow down the rate of increase. It attempted this by reducing fuel tax, some weeks ago, but in no time any benefit was cancelled by the price increase; the increase was smaller, it could be argued.

Under the circumstances, there is very little the government can do to stop prices rising. Akel has talked about placing a plafond (price ceiling) on essential goods, but this revealed the party’s limited understanding of market economics rather than offering a viable option. Price ceilings, inevitably result in big shortages as no business will be willing to import and sell products at a loss. Even its demand for government controls on ‘profiteering’ is nothing more than Akel’s populist rhetoric. It has not cited a single example of this notorious ‘profiteering’. There may be a small number of companies operating with high profit margins, but we live in a free economy.

Anastasiades is feeling the pressure because last week he told us that the Cost of Living Allowance (CoLA) was beneficial because it maintained the purchasing power of wage-earners. CoLA benefits high earners much more than the low-earners, but, worse still, it fuels inflation as businesses will pass on higher labour costs to prices. This is basic economics, which our politicians do not seem to understand. The introduction of a national minimum wage, which is in the government plans, would also fuel inflation which is why it may have to wait a while before it is implemented.

There are no simple solutions to the rising prices as Akel misleadingly suggests. People will have to get through this difficult period by changing their lifestyle and consumption habits. The priority of the government measures should be the support of vulnerable groups and those below the poverty line who will be unable to make ends meet. Horizontal measures that the government spoke about, also help the highest earners, who do not need support. Measures must be targeted to households in need.

 

 

 

 

 

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