New PCAP Regulation 2016 to benefit consumers in short-run, but price increases still imminent

KUCHING: The new Price Control and Anti-Profiteering (PCAP) Regulation 2016, to be fully effective in April this year, will benefit consumers in the shortrun but price increases are still imminent.

The research arm of Kenanga Investment Bank Bhd (Kenanga Research) had hoped for an easing of regulation on pricing matters with the expiration of the PCAP Regulation 2014, as companies suffered margin compression from the rising production overheads with limited means to pass costs down to consumers via higher prices.

“While the market could negatively react with a decline in general demand, we believe an uptick in net earnings could still be seen as companies are expected to test their pricing strategies with progressive increments in determining an ideal price point to maximise margin improvements while also ensuring market share remains intact,” it said.

Though the implementation of the PCAP Regulation 2016 by the Ministry of Domestic Trade, Co-operatives and Consumerism may appear to impede such views, Kenanga Research believed the price control measures would only benefit consumers in the short-run.

This comes as food producing and trading companies have been seeking avenues to keep margins sustainable against rising operational costs, particularly from recent developments such as an increase in minimum wages, adverse forex impact on commodity and raw material prices.

The research arm’s checks with food and beverage (F&B) players guided that certain decisions on recent increases in product prices were caused by the aforementioned elements.

With an expectation of price increases in the short-to-mid-term in spite of the implementation of the PCAP Regulation 2016, Kenanga Research believed any visible impact will be minor as the research arm did not anticipate an aggressive repricing of F&B and household products in the near future on the back of more cautious and strategic price strategies.

That being said, the research arm maintained its view on a challenging 2017 as the cost advantagefromthesoftcommodity market is diminishing, further aggravated by the weak local currency.

“Meanwhile, consumer sentiment is likely to stay subdued in 2017 in view of the continuing concerns on the state of economy, job market as well as rising cost of living,” it said.

“On the flipside, we have not turned bearish on the sector as we believe the sector is resilient and defensive enough, supported by the healthy private consumption, further evidenced by the recovery in sentiment from the low in end-2015.”