EPF withdrawals, from pandemic lifeline to boost factor in price of goods?

The government's green light for emergency withdrawals from the Employees Provident Fund (EPF) in the wake of the Covid-19 pandemic was welcomed by many who had been struggling to make ends meet due to the restrictions on movements and the economic slump that ensued. 

But what was once hailed as a lifeline may also have contributed to the increase in price of goods that has left millions feeling the pinch today. 

Over the past two years, the government rolled out three EPF withdrawal schemes – i-Sinar, i-Lestari and i-Citra – in addition to a fourth special withdrawal in March this year. 

Other forms of aid included stimulus packages and moratoriums on bank loan repayments. 

But while these measures were seen as a response to the situation at the time, the gradual reopening of economic sectors in Malaysia's transition towards endemicity has been accompanied by an increase in spending. 

Economists had also warned that further i-Citra withdrawals this year could lead to inflation. 

Barjoyai Bardai of Universiti Tun Razak said there was no denying that the withdrawals had caused a sharp increase in the price of goods.

"The giving of targeted aid has amounted to more than RM10 billion, while EPF withdrawals have hit RM60 billion," he said. 

"You can see the effect on the cost of eating at restaurants. When restrictions were eased, many began eating out again, and this caused a spike in the demand for raw goods." 

He added that the high demand from traders had forced other consumers to fork out more for food items.

For example, he said, a food trader who accepts a contract to supply food might be willing to pay up to RM20 per kg. 

But suppliers were more likely to sell to vendors than to normal households, he said. 

For many, the price of chicken is one of the main grievances when it comes to the spike in cost. 

The government previously gave subsidies to poultry farmers but these were eventually axed. 

A suggestion to float the prices of chicken was also scrapped, with a ceiling price of RM9.40 per kg set instead. 

For now, chicken exports have also been curbed in an effort to boost domestic supplies. 

The price of bottled palm oil has also risen although the government is continuing the provision of subsidies for 1kg packets of cooking oil.

Economist Afzanizam Abdul Rashid said while the stimulus packages and EPF withdrawals had had an impact, this was difficult to quantify. 

"When there is a lot of money in the economic system, there is a sudden increase in demand once the economy reopens," Afzanizam, who is chief economist at Bank Islam, said.   

"In terms of an increase in economic activity, the first quarter of this year saw a jump of up to 5%. There is a demand pull factor in place there." 

Geoffrey Williams meanwhile attributed the increase in food prices to supply restrictions due to the various movement control orders. 

"Food producers cut their activities, and it was very slow for them to start again," Williams of Malaysia University of Science and Technology said. 

"There are also anti-competition issues which the government is looking at."

According to Williams, the current inflation has nothing to do with the EPF withdrawals or stimulus packages. 

"They provided minimal support to demand during the lockdowns, and without them, things would have been very much worse," he said. 

"We would have had even more supply-side problems, slower growth and higher inflation." 

But the economists agreed that the government's move to monitor anti-competition and market manipulation by cartels as well as monopolies and middlemen was a positive development. 

Barjoyai said the price of a commodity is not determined by retailers alone, but by the market system that goes through the supply chain.

"The chain goes from the manufacturer to the wholesaler, and through several stages before reaching the retailer," he said. 

"We don't know exactly who is manipulating the prices. Farmers say they sell chicken for less than RM5 per kg, so how can the price reach RM8.50 to RM9.40 by the time it gets to the retailer?"

Williams meanwhile said elements such as monopolies, cartels and middlemen do not result from market forces but through licences, permits and regulations issued by the government only to certain parties. 

In line with their actual functions, he said, middlemen could act as supply coordinators, bringing products to the market and sharing resources such as transportation. 

"However, the general experience in Malaysia is that middlemen use their position to manipulate markets, marking up the prices, and taking a big cut between the producers and consumers," he said. 

"It has been the government policy for many years to create these anti-competitive arrangements, and now we are seeing the cost and consequences."