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Temporary Price Controls as a Second-Best Option to Control Sudden Spikes in the Prices of Basic Necessities (Inglés)

Given rising inflation, governments around the world may be considering price controls. While inefficient in most cases and often costly, price controls may be warranted under certain circumstances to avoid sudden price spikes in staples, such as food items and fuel. Short-term price controls may play an important role in keeping inflation expectations in check. Such controls need to be carefully designed. In most cases, they should be temporary and limited to goods that make up a large share in the overall consumption expenditure, especially in that of poor households. Direct transfers to poor households and firms, once the relevant digital infrastructure is in place, are a better alternative to alleviate the pain from the price shocks without distorting price signals or subsidizing the wealthy.

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