Daily Archives: July 7, 2011

Negative effects of Price controls in Bolivia

This cartoon appeared in El Diario on July 6, 2011. It portrays how small vendors are reacting to this government’s policy on price ranges for given food products (while ‘Finance minister’ looks in disbelief). This reaction has impacted consumer’s economy since last year. Despite government officials’ assurances, it is expected that this year’s inflation will surpass previsions. On top of setting up price floors and ceilings, our exports are diminishing, which in turn will trigger lower production levels which will also have an impact on the supply and a further burden on consumers income and expectations. Speculation and price control has proven to be ineffective and there is no reason to believe this will improve either.

How the market reacts, varies from industry, take for example milk by PIL, in the past a bag had a liter, now it has around 946 ml; the consumer’s perception remains the same, the size of the bag and price of it is the same as before; a misleading effect that shadows real impact on household income. There are sectors like tourism, which should also be concerned; lodging prices may suffer increases which could have an unforeseen impact on tourist’s budget and expectations.

Food security is a worldwide concern and Bolivia should revise its current “policy”.