Inflation stands at decade's highest

It is now close to double-digit
Rejaul Karim Byron

Inflation rate on a point-to-point basis in June stood at a 10-year high 9.20 percent, and threatens to reach a double-digit soon due to floods and the upcoming Ramadan.
Economists suggest that the government maintain usual trading in the markets instead of trying to improve the price situation by deploying law enforcers.

Inflation came down slightly in May but it leapt by 1.15 percentage point to reach the record high in the last month of fiscal year 2006-07.


On average, it ran 7.22 percent in June compared with 7.16 percent in the corresponding period of last fiscal.


According to the Bangladesh Bureau of Statistics (BBS), the inflation on average has seen a steady rise over the last five years.


The inflation on food items increased by 1.47 percentage point in June to 9.82 percent compared with 8.35 percent in the penultimate month of the last fiscal, according to the data available.


In the same period, inflation on non-food items rose by .57 percentage point to stand at 8.34 percent. It was 7.77 percent in the previous month.


However, the rate of price increase in non-food items ranged between 4 and 6 percent in the months preceding April, the month when it crossed 7 percent mark in April.


In the wholesale and retail markets, prices of daily necessities are still very high. In last one year, prices of rice increased by 15 to 23 percent. Those rose by 4 to 11 percent in last month, according to latest data released by Bangladesh Trading Corporation (TCB).


Price of flour shot up by 34 to 54 percent and edible oil (Soybean) by 43 to 61 percent in the last 12 months. In June, flour sold at prices 14 to 19 percent higher than those in the preceding month.


Prices of other commodities too have surged during the last one year.


Sajjad Zahir, executive director of Economic Research Group, thinks that inflation rate might enter double-digit by July because of worsening flood situation.

He fears more inflationary pressures following the month of Ramadan. According to him, huge shortfall in supply is the major cause of high inflation in the recent times.


He said the recent government measures to reduce duties on imports and ease L/C opening are good moves. But to keep the supply side under control, it should withdraw the law enforcers from the markets immediately.


The traditional market chain has broken down due to intervention by the law enforces deployed for market monitoring, he said.


The government's decision to gauge the developments in the market by engaging the law enforces would not do any good to the inflation situation.


The central bank's contractionary monetary policy will not help in the long run to improve the supply side, he observed.


Zahir said that in the face of the ongoing anti-graft drive, some people might opt to send their ill-gained money abroad through hundi and after some time get it back under cover of remittances.

He believes the practice could contribute to increasing the remittance inflow adding to the inflation pressure. The government should act immediately to examine if it is happening or not.


Meanwhile, the Asian Development Bank (ADB) in its economic update for June observed that the huge remittance inflow might be one of the reasons of rising inflation.


The link between remittances and inflation in Bangladesh is not strong at all; it often results in consumption instead of investment.


"Letting markets for necessities function normally without administrative actions that cause disruption to the supply chain will also be important," the Bank said in the update released yesterday.


The central bank at a coordination council meeting last week blamed the high inflation on spiralling food prices in both domestic and international markets.


Presided over by Finance Adviser Mirza Azizul Islam, the meeting found that prices of rice in the global market shot up by 31 percent, wheat 26 percent, soybean oil 21 percent and palm by 48 percent between 2004 and 2007.


During the same period, the domestic production of food grains has increased by only 1.2 percent that is 19.5 percent short of the target.