07/01/2008 (The Financial Times) - Malaysia has called on stores to ration cooking oil sales because of panic buying sparked by rumours that the government was set to raise the price of the basic household commodity.

The situation underscores the problems that Malaysia and other emerging markets are facing in grappling with shortages of consumer items whose prices are controlled by the state while market prices are rising. Malaysia has suggested it may cut state subsidies this year for petrol because it accounts for a large part of the government budget deficit.

Global prices for palm oil are at record highs, which has prompted speculation that Malaysia would allow an increase in the price of cooking oil. The government said it would limit consumers to 5kg of cooking oil each and has told producers to increase supplies.

Officials have blamed the shortage on the smuggling of cooking oil into neighbouring Thailand and Singapore.

Malaysia’s ministry of domestic trade said it would “study measures, including stopping leakages in the distribution system, to prevent the problem from recurring”.

Economists suggest Malaysia should relax price controls on cooking oil and other commodities to ease frequent shortages, but the government is reluctant to do so. Annual inflation touched a nine-month high of 2.3 per cent in November because of rising food and transport prices and the government is keen to protect its popularity in advance of expected general elections.

Indonesia, which overtook Malaysia last year as the world’s largest crude palm oil producer, tackled rising cooking oil prices in September by increasing export taxes on palm oil exports to try to increase local supply. Exports have fallen and domestic supply has increased but economists doubt the policy’s long-term efficacy if global demand and prices continue to rise.