Inflation hits decade
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Inflation hits decade

Sep 23, 2023

Bangladesh continues to experience a sharp rally in inflation despite a decline in global commodity prices, primarily due to supply-side constraints.

According to the latest report from the Bangladesh Bureau of Statistics (BBS) on Monday, the monthly inflation rate in May soared to a decade-high of 9.94%, up from 9.24% in the previous month, as both rural and urban people are paying higher prices for food and non-food items.

The surge in the inflation is higher than the 7.32% growth in wages in May, the statistical agency also revealed, indicating the hardship for fixed income earners.

Supply-side disruptions, specifically the higher cost of production, have been identified as the primary drivers of inflationary pressure. Immediate measures are being urged to alleviate power and energy crises in order to facilitate production activities.

While the inflation keeps surging, the new budget sets average annual inflation target at 6% for the next fiscal year, though economists have pointed out that the budget lacks measures to tame inflation.

They have proposed enhancing market monitoring to ensure fair competition and accelerating cash or food support for the poor to help them cope with inflation.

Dr Zahid Hussain, former lead economist of the World Bank's Dhaka Office, emphasised that industrial production has been disrupted due to energy and power shortages.

The shortage of foreign currency has played a significant role in the power crisis and has also hindered the import of capital machinery and raw materials for industries, he said.

The BBS report revealed that food inflation stood at 9.24% in May, representing a notable increase from 8.84% in April. Simultaneously, non-food inflation rose to 9.96% in May, up from 9.72% the previous month. In rural areas, inflation reached 9.85% in May, compared to 8.92% in April, while urban areas saw inflation rise to 9.9% in May, up from 9.68% in the previous month.

Dr Zahid Hussain noted that it is rare for inflation to increase for all commodities across all markets. He expects food inflation to rise in the future, as the prices of food products have not decreased even during the peak season.

He pointed out that the global market indicates diminishing inflationary pressure, as the World Bank's commodity market outlook projected a 20% reduction in commodity prices globally. This reduction is expected to encompass food, energy, fuel, and metals.

While inflation has been decreasing for the past 10 months in the USA and has remained within the target range of 4-6% in India, the reduction in global prices has had a limited impact on the local market, according to Zahid Hussain.

He expressed concern that policies announced in the proposed budget for the next fiscal year could further accelerate inflation.

He cited inflationary pressures faced by industries due to several hikes in the prices of power and fuel in recent months.

He also highlighted the proposal to increase indirect taxes, particularly VAT on essential goods, which could further contribute to inflation.

Furthermore, he raised concerns about the proposed bank loan of TK1.32 lakh crore to finance the budget deficit, which would increase inflationary pressure.

He urged the government to curb domestic demand to reduce pressure on foreign currency, the budget deficit, and public borrowing in order to tackle inflation effectively.

The BBS report also revealed that the moving average inflation rate for the past twelve months reached 8.84%, compared to 5.99% in the period from June 2021 to May 2022.

The finance ministry initially announced a target to keep inflation below 5.6% in the current fiscal year but revised the target to 7.5% in the budget revision. The average inflation rate for the past 11 months was recorded at 8.95%, well above the revised target.

According to BBS data, the average inflation rate was 10.92% in fiscal 2010-11. The current inflation rate is the highest in the past 12 fiscal years, starting from 2011-12.

The BBS calculates the inflation rate every month to track the trend of the cost of living. The 9.94% inflation rate in May indicates that the basket of goods and services that cost Tk100 in May last year now costs TK109.94. Consumers with the same income have to buy fewer goods and services to maintain their standard of living.

Dr Monzur Hossain, research director of the BIDS, pointed out that limited-income groups, particularly the poor, are under pressure due to higher living costs. Given that inflation disproportionately affects the poor, he called on the government to increase food and cash support for these individuals.

He suggested that the government should reduce indirect taxes, particularly Advanced Income Tax, Customs Duty, Supplementary Duty, and VAT on imports, to lower the prices of essential goods. He also emphasised the need for proper monitoring to prevent collusion and syndication in order to ensure perfect competition in the market.

Bangladesh / Economy / inflation / Bangladesh Bureau of Statistics (BBS)

Jahidul Islam Bangladesh continues to experience a sharp rally in inflation despite a decline in global commodity prices, primarily due to supply-side constraints.