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When the price of a product goes up, it is one of two principal reasons. One is the increase in demand while supply remains constant or increased only at less than the increase in demand. The other is the decrease in supply while demand remains constant or decreased only at less than the decrease in supply.
In many areas in Luzon after the recent typhoons and floods, prices of many things went up. This is the natural consequence of the imbalance in supply and demand caused by the dwindling supply of many things that were damaged by bad weather or prevented from being replenished by outside suppliers because of transport problems and other reasons.
It is true that some sellers take advantage of the situation by increasing prices of their products even if they were bought at a much lower price before the typhoon and floods came. Whether that is good or bad is another question because if prices go up it will also encourage others to find the necessary supply somewhere else to take advantage of the price increase. But in so doing, they also drive down prices to their original level.
Of course, this is true only if the supply line is still open and the market is free and consists of many sellers. If the supply line is closed or if the market is short of competitors, prices tend to be higher although not so much as to drive away all the buyers. What profit can you make if your mark-up is high but nobody buys?
This is all in Economics 101. It tells you that when you mess with market forces, such as setting a price ceiling below market price for some products that are deficient in supply, the result will only be much higher prices for these products in the black market or areas that could not be monitored by government regulators. When you fix the price of the product lower than what it gets in the free market, more people will come to buy that product. When supply can’t meet demand, prices will naturally go up because people who are unable to get what they want at the lower government-set price will now be willing to pay a higher price just to get what they want. Because of the destruction caused by the typhoons and floods and because of the problem of resupply, it is not surprising if the supply of certain products in many areas in Luzon is indeed scarce and their prices higher now.
If the government wants to limit price increases, the solution is not a government fiat fixing prices of certain products below market price. Instead, what is needed is more government intervention in another form such as finding ways to make resupply easy to do in areas where the prices of certain products are rising. If, for example, the price of rice is going up in some areas in Luzon, flood it with NFA rice from Manila where most of the country’s rice imports or supply from other parts of the country are landed. It is as simple as that.
Economics 101 tells us that the supply of anything is determined by many forces. One is the cost of producing the product, which includes both warehousing and transporting that product into areas where they are in short supply. Make transport a little problematic and expensive or flood the warehouse with water and damage the product and what remains of the product available for sale in the affected area will naturally carry a much higher price when disposed.
Normally, prices only fluctuate gradually or, for some products, seasonally. It goes up or down drastically, for example, when the factors behind their production, warehousing, transportation and other activities surrounding the production and sale of the product also change abruptly such as what happened in Luzon after the last typhoons that flooded many areas and destroyed crops and damaged many roads, bridges and other infrastructures that cut supply lines.
Advances in technology can also change the supply and demand of many products, which in most cases is beneficial to consumers. Once we had the pocket pager. Those who carried it were the subject of envy. When mobile phones came, nobody used a pager anymore. The same thing happened with the typewriter after the coming of computers. Mobile phones used to be expensive but now they are very cheap unless you demand the latest model with more functions that are there more for show than for actual use. So goes the personal computer, where falling prices also come with more power to compute.
Nobody placed a ceiling on the price of mobile phones and computers but, just the same, their prices are falling despite the increase in demand. The reason is the free interplay of market forces.
Control the market forces if you have to but only if your purpose is to facilitate their free interplay, like repairing roads and bridges damaged by typhoons and removing floodwater immediately so that production and supply lines is restored to normal.
Announce that prices are under control and you only make the supply disappear from normal market channels and prices go up much higher than what would have prevailed without price control.
