The economy of Bangladesh has been suffering from a double-digit inflation. A shortage of oil production or energy crisis world-wide, increase in energy prices and cost-of production in combination with a demand-pull inflation from expansionary economic policies have caused a persistent inflation. Altogether these have created a supply-side problem by decreasing the productivity. The situation of Bangladesh has been aggravated due to political problems and effort of minimizing corruption and a lack of confidence in business and manufacturing. It is hard to assume that we can ever get back to the single digit inflation. It is almost clear that we have to live with this double-digit inflation.
The natural rate of inflation from four to five percent is accepted in almost any developing country. But, a double-digit inflation of more than ten percent must have some reasons. Inflation is the persistent
and generalized
increase in the level of prices of goods and services.
Consumers are worried about higher or increasing prices of their consumer goods as their real income, purchasing power and their standard of living is going down.
Inflation is normally caused by a combined effect of demand-pull,
cost-push, and expansionary monetary
or fiscal policy. The recent inflation in Bangladesh is relatively more a cost-push inflation than a demand-pull. Rising prices of goods of all kinds including the goods of necessities is mere a reflection of the rising cost of production than a higher demand for these goods and commodities.
Productivity, or output per labor, is not increasing as much as their wages are increasing.
Factors of production and their productivity in our economy of recession including land, labor,
capital, technology, innovation and management are not increasing due to land erosion and land fragmentation,
lack of training, wear and tear of capital equipment, and their lack of replacement, backwardness of technology and innovation. The lack of skilled manpower, leadership, smart management and productive working environment and discipline is common
in Bangladesh. The higher import prices of raw-materials,
energies, fuel and intermediate
goods are also increasing the cost of production.
Wages in the major employment - or the public sector in Bangladesh has been increasing
for more than the last two decades due to both strong and moderately
strong labor union. Due to political, social and cultural tradition and for a humanitarian
reason,. Finally, we have the nationwide increase in wages relative to the productivity or output per labor. Higher wage is easily transferred to higher cost of production and higher prices of consumer goods. Increased
wages lead to the rising inflation.