It is a phenomenon that is taking place in several Latin American countries under the pretext of wanting to lower inflation, but it has negative effects on the economy of families. It is not a matter of ideology, but simply of common sense. I hope that if no one has informed President López Obrador that it would be the wrong economic measure, he can at least learn that it is the least needed right now. Prices for any good or service should not be controlled or fixed.
In an economy, prices account for a series of situations, allowing producers to know which products are most valued by consumers, thus constituting an incentive for production and innovation. Likewise, variations in prices show which products are more scarce, in which case the increase in prices allows, as a general rule, to reduce the demand for them, thus controlling situations of scarcity.
The State can control prices in two ways: by establishing a floor or base prices, or by establishing a ceiling or maximum price.
By setting maximum prices, a series of economic effects are produced, among which the increase in demand, the decrease in production and, as a long-term consequence, the scarcity of products stand out.
From the consumer’s perspective, faced with artificially low prices, there is an obvious incentive to consume. This situation is even more serious if we consider the experience that we have lived as a country in recent months, where fear of shortages has led consumers to hoard food and other essential products, through the disproportionate purchase of them in supermarkets. , warehouses and fairs.
This has as a consequence an over demand for food that will be extremely difficult to supply, so that there will be those people who can access these artificially low prices, but others simply will not be able to access essential products due to lack of stock of them.
From the producers’ point of view, setting a maximum price automatically implies a disincentive to production, since the profit margin to which they can aspire is diminished. This is especially serious considering the agricultural sector, since there is a series of small and medium-sized producers for whom production with an established maximum price would no longer be profitable, eventually excluding them from the market.