In recent months, we see several opinion pieces on the various aspects of inflation in Bangladesh. Inflationary pressure has been increasing again in recent months. The latest figure shows a 7.41 percent inflation in November. Fuel import, energy price hike and Taka’s devaluation against the US dollar have combined to increase Bangladesh’s non-food inflation. Food inflation has also increased, although not by the same amount.
The country’s general inflation has also been in double digits for some time now. The last time it happened was in the early 1980s. In addition to price hike of electricity and fuel oils, and devaluation of taka, the rise in government’s spending and credit growth in both public and private sectors have also contributed to the rise in inflation.
Prices of a number of essential food commodities have also increased
in recent months. However, despite the best of intention of the Ministry of Food, the retail prices of food grains in the local market have increased significantly in recent months and are likely to increase
further until the next harvest. This raises concerns about economic
stability and food insecurity as the purchasing power of low-income families has been reduced.
Last year, the International Monetary Fund (IMF) had asked the Bangladesh Bank to tighten monetary
policy to contain inflation.
The IMF recommended, among other measures, safeguarding reserves through continued exchange rate flexibility and interventions
only to
Over the last few months, the Bangladesh Bank has followed a restrictive monetary policy
by raising rates on a number of occasions. The Bank has also increased statutory liquidity ratio and cash reserve requirement in an effort to keep inflation in check.
However, the problem with such an effort is that these policy measures would be adequate if only excess demand were driving inflation. Inflation caused by changes on the supply side of the market would remain mostly unaffected by the policies recommended by the IMF and undertaken by the Bangladesh Bank.
A look at the causes of inflation would show that in recent months changes the supply side has been as much of a factor in raising the inflation rate as changes in the demand side. In short, inflation
in Bangladesh has been both a cost-push and demand-pull phenomena.
Rapid increase in the prices of food items eroded the purchasing power as well as standard of living of the poor, government and non-government employees, industrial workers, the unemployed and the people with limited income. This has forced a section of the population to drop below the poverty line.
Remedies of inflation:
1. REDUCE DEMAND PRESSURES
* Raise interest rates to discourage borrowing
and demand
* Raise taxes to reduce disposable income and spending
* These policies should all reduce peoples ability to spend too much money
2 REDUCE COST PUSH PRESSURES
If inflation
is caused by high costs
• Limit wage increases if possible
e.g. public sector workers
• Force electricity and gas companies to hold their prices
• Increase the value of £ in order to reduce the cost of importing
3. REDUCE MONEY SUPPLY PRESSURES
• Withdraw
some money from circulation.