Price hike not always the answer: Economist

August 28, 2009 07:41:37 AM

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Increasing prices for goods and services should be the last resort taken by the government in times when everybody is facing hardships, says economist Dr Biman Prasad.

Dr Prasad made the comment as the Commerce Commission looks set to approve another price hike, this time in the construction industry.

Local manufacturers have asked for a cement price increment following the 20 per cent devaluation of the Fiji dollar earlier this year.

The Commerce Commission heard submissions from the Fiji Industries Limited this week.

Dr Prasad said “if prices of inputs into key industries such as construction are allowed to increase this could have serious implications for the construction industry which is already in decline”.

“The Government must ensure that demand for prices increases from various sectors of the economy be granted as a last resort,” he said.

“Private and public sector companies must find alternative ways to survive and not just the easy way out in terms of asking for price increases.”

According to the Bureau of Statistics, majority of the construction that has taken place in the first quarter was done in the non-residential sector.

Dr Prasad added “one of the key issues facing our economy is the rising prices of all consumer and non-consumer goods and services. The government therefore has to be very careful in allowing price rises.”

He said increasing consumer goods and services prices are already dampening the demand and this could affect economic performance.

The University of the South Pacific Dean of Economics believes that other avenues have to be considered first before a price hike.

“Some of the public sector utility companies such as Fiji Electricity Authority should use this opportunity to restructure, cut costs to remain viable and not rely on price increases,” he said.

The Commerce Commission recently approved the FEA’s request to increase tariffs.

The Fiji Water Authority is expected to increase water rates to commercial entities.