Central Bank called targeted assistance to citizens an alternative to direct price regulation

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Direct regulation of prices in the markets allows prices to be stabilized only in the short term, but subsequently this leads to imbalances and entails negative effects for regulated industries and the economy in general, according to the analytical note of the Central Bank “Price regulation: when to stop?” An alternative to this can be targeted support of citizens, according to the Central Bank.

“From a social point of view, targeted material assistance to the poorest strata of the population is a more preferable and effective alternative to the regulation of consumer prices. In addition, this form of support introduces significantly less distortions in the dynamics of economic activity, inflation and inflationary expectations, ”the document says.

The Central Bank named several long-term consequences of price regulation, which ultimately lead to higher prices for goods:

– Reduction of investments and production volumes of goods, prices for which are regulated, first of all, by small businesses that are not involved in the full production cycle. This, in turn, can lead to a loss of competitiveness of domestic producers in world markets. Then the value of goods increases due to the deterioration of the ratio between demand and supply and because of the possible increase in dependence on imports;

– The short-term effects of price regulation often “create a temptation” to continue using these measures;

– Regulation of prices for some goods may lead to regulation of others in the production chain;

– With the introduction of price regulation, data on supply and demand are transmitted incorrectly. This slows down the growth of supply volumes in response to the increase in demand and thereby maintains an imbalance between them for a long time. It gets in the way of competition;

– The risks of a deficit and growth in the volume of shadow trade are growing, and the costs of the state in combating it are increasing.

The Central Bank also pointed to the negative effects of indirect price regulation. An example of this is the introduction of export duties. Such measures can help smooth out fluctuations in domestic prices, but will not protect against a rise in world prices in the future, says the regulator’s document.

At the end of 2020, Russian President Vladimir Putin pointed out to the government a significant rise in prices for sugar and sunflower oil. According to Rosstat, then the prices for these products increased in annual terms by 64.5 and 25.9%, respectively. To restrain the growth in the cost of these goods, a number of manufacturers and retail chains signed an agreement with the Ministry of Agriculture and the Ministry of Industry and Trade, according to which the maximum selling price for sunflower oil was set at 95 rubles. per liter, retail price – 110 rubles. per liter, and the cost of sugar is at the level of 36 rubles. and 46 rubles. for 1 kg, respectively. Such prices for the first of the goods were valid until October 1, 2021, for the second – until June 1. Now the government does not plan to conclude new agreements with retailers and manufacturers, said State Secretary, Deputy Minister of Industry and Trade of the Russian Federation Viktor Yevtukhov on December 3.

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