The think tank said in a statement today that the current debates underscore a poor understanding of price theory.
CME said that prices, including wages, are determined by supply and demand, reflecting scarcity, productivity, expectations, and valuation rather than aspirations or moral preferences.
“To suggest that wages can be elevated independently of these underlying conditions risks misunderstanding the nature of economic coordination itself,” it said.
“When prices are disconnected from the realities of supply and demand, unintended consequences follow: most notably unemployment, misallocation of resources, and the erosion of opportunities for those at the margin of the labour market.”
CME also linked the current oil crisis to muted price signals, pointing to Malaysia’s long-standing petrol subsidies.
It said this weakens the market’s ability to adjust to supply and demand, encourage innovation, and efficiently allocate resources.
The Middle East war, which is in its sixth week, resulted in rising fuel costs following disruptions to global supply chains.
Despite this, Putrajaya has maintained the RON95 price at RM1.99 per litre under the BUDI95 scheme, along with targeted diesel subsidies, now costing an estimated RM4 billion per month.
The government subsidised RON95 and diesel until a managed float and automatic pricing system was introduced in 2010. A fixed subsidised RON95 price of RM2.05 per litre was reintroduced in 2018, followed by the BUDI95 scheme last year.
To address price distortions, CME proposed a shift towards the use of targeted vouchers, which allow fuel and other essential prices to reflect real market conditions, while compensating those most in need through digitally administered credits.
“As Malaysia’s experience shows, once prices are politically fixed, economic structures adapt around those distortions, making reform increasingly difficult.
“By contrast, a voucher-based approach allows for a progressive realignment of behaviour with real economic conditions, without imposing sudden shocks,” it said.