Inflation hit three-month high in October
Inflation hit a three-month high of 10.87 percent in October thanks to the soaring food prices, especially the staple rice and vegetables.
Last month, food inflation hit 12.66 percent and non-food inflation declined 16 percentage points to 9.34 percent, according to the latest published data from the Bangladesh Bureau of Statistics.
The elevated price level comes despite a hawkish policy by the Bangladesh Bank to combat inflation.
In its quarterly report titled “Inflation Dynamics in Bangladesh”, the central bank said domestic products accounted for 74 percent of the overall inflation in September.
In contrast, the contribution of import-dependent items to inflation fell to 26 percent in September from 39 percent in June.
In the latest edition of its flagship Asian Development Outlook, the Asian Development Bank projected that inflation this fiscal year would hit 10.1 percent, 3.1 percentage points higher than its previous projection in April.
However, the World Bank, in its latest edition of the Bangladesh Development Update in October, projected that inflation would decline to 9 percent this fiscal year from 9.7 percent in fiscal 2023-24.
“The elevated inflation is generally very painful for people living in poverty — it is crucial that the government increases its social security spending to make this process tolerable,” said Ashikur Rahman, principal economist of the Policy Research Institute of Bangladesh.
High inflation, particularly food inflation, has affected the purchasing power of low-income people and forced them to cut back on nutritional foods, said Mustafa K Mujeri, executive director of the Institute for Inclusive Finance and Development.
“When high inflation persists for a long time, this also reduces coping strategies and gradually narrows opportunities for low-income and low-skilled people,” Mujeri said.
For the BB’s monetary policy to work to tame the inflationary pressure, it is also important that no ad hoc upward adjustments are brought to energy prices, Rahman said.
“It is essential to understand that monetary tightening generally takes six to nine months to have a robust effect on inflation. Therefore, we have to remain committed to a tightened monetary framework if we want inflation to come down.”
So far, the policy rate has been increased to 10 percent and the BB has refrained from printing money to support the Treasury.
“This should help the overall process,” Rahman added.
However, Mujeri said that a contractionary monetary policy is not enough to fight inflation.
There is a need to integrate multiple policies and ensure effective market management.
Before ensuring a proper supply chain, market monitoring or commodity price-setting would not be effective.
“It’s a contradictory move,” said Mujeri, a former chief economist of the BB.
The government should find out if any vested group is involved with the market manipulation, he added.
“The impact of the policy rate hikes in lowering inflation rate will take time — given the current situation, our inflation cannot be curtailed by only increasing lending rates,” said Fahmida Khatun, executive director of Centre for Policy Dialogue.
The government must put efforts towards market management to ensure adequate supply.
The severe floods across several districts impacted production. Besides, the presence of middle-men, rent seekers and extortionists could not be eliminated yet.
“Market monitoring should also be strengthened to check any attempt to create artificial supply shortages. The Competition Commission must act.”
To meet supply shortages, the government should immediately import items. It should also reduce tariffs on imported items and ensure that benefits of reduced tariffs go to the consumers, she added.
Originally posted in The Daily Star on 8 November 2024