Although the Victorian Greens want a cap on grocery prices to spare consumers’ wallets, experts suggest it could be a bad idea. Greens MP Sam Hibbins made the suggestion in The Age on Monday, saying price controls on food staples would be an effective way to curb cost-of-living issues. Major supermarkets Coles and Woolworths have been the focus for community anger in recent months, as the two posted large profits while many Australians are struggling with rising prices.
But while Hibbins has suggested price caps could curb the worst of these rises, others have suggested it could backfire and actually result in less stable prices because of market distortion. University of Adelaide economics expert Professor Ralph-Christopher Bayer said price caps have immediate and longer-term effects that could end up making some foods less available and more expensive.
“In the short term, what might happen if you cap prices is that there’s more demand at that price than there’s supply,” he said. “The problem is that it might lead to rationing.” Also, but in the longer term, capping prices could muddy signals for farmers, who rely on prices as a measure of the balance between demand and supply changing for products. “You might have a problem where that price signal doesn’t work,” he said.
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