Bonikbarta Exclusive

Overall inflation in Bangladesh stood at 9.72 percent in June. During the 2023-24 fiscal year, the average inflation rate was 9.73 percent. Even though overall inflation decreased in June, food inflation in rural and urban areas remained above 10 percent. Bangladesh Bureau of Statistics (BBS) recently published this report.

According to the BBS statistics, Bangladesh's inflation was twice as high as India's and Nepal's in the last two months (May and June) of fiscal year 2023-24. However, Sri Lanka's inflation stood only at 1.7 percent during this time. Only Pakistan's inflation rate was a bit higher than Bangladesh.

Sri Lanka is grappling with unprecedented economic and political crises in South Asia. It faced one of its most severe turmoil in 2022, with inflation soaring nearly 60 percent. Fueling the crisis was the halt in imports of essential goods due to depletion of foreign exchange reserves and failure to repay foreign debts. Sri Lanka's government even declared the country bankrupt. However, according to the Central Bank of Sri Lanka, within two years, the country reduced its inflation rate to 1.7 percent in June.

Neighboring country India also saw its inflation drop to a record low in the past two years. For India's national election, data for June is not yet available, but according to India's Ministry of Statistics, inflation was 4.75 percent in May. Nepal has maintained its lowest inflation rate in 31 months, with inflation at 4.4 percent in May, down from 7.41 percent a year ago. Compared to Bangladesh, Pakistan has higher inflation due to political and economic crises, with a June inflation rate of 12.6 percent, according to Pakistan's Statistics Bureau.

The COVID-19 pandemic and the Russia-Ukraine war have significantly affected inflation in most countries at the beginning of 2022. The price of crude oil rises to 130 dollars per barrel due to the war. Other petroleum products including coal, gas, and other fuel products prices also increase at an unusual rate. Edible oil, wheat, and other essential commodities were also expensive. Consequently, the crisis led to several countries' depletion of foreign reserves due to increased import spending. However, inflation has changed globally over the past six months. The price of crude oil in the world market has also fallen to 80 dollars per barrel. The prices of edible oil, food grains, fertilizers, raw agricultural materials, fertilizers, and industrial metals have also fallen for several months.

However, Bangladesh's situation is totally different from the world market. The prices of all goods, including groceries, are still unstable, and as a result, inflation is not being controlled.

Since the beginning of the FY24, the government and the Central Bank have taken several steps to control inflation. The bank's interest rate on loans increased from 9 percent to 14 percent, and it has increased to 16 percent on loans to certain banks. The government has also reduced bank borrowing in line with the contractionary monetary policy. The budget of the new FY has not been expanded like last year. Despite all these efforts, inflation is yet to be subdued. 

Dr Mustafa Kamal Mujeri, executive director of the Institute for Inclusive Finance and Development (InM), said among the neighboring countries, Bangladesh has taken contractionary monetary policy late. He also thinks improper and poor market management is another reason for inflation. In his words, "These countries took steps to tame inflation with a strong hand. Whereas, prices of goods are manipulated by powerful syndicates in Bangladesh. As a result, monetary policy is not enough to control the inflation rate; rather, a balanced relationship between revenue and other policies needs to be consistent."

In the latest statistics of the BBS, it is said that in June, the inflation of food and non-food items decreased slightly. However, food inflation in rural and urban areas has exceeded 10 percent. Food inflation declined by 10.42 percent, and non-food inflation increased by 9.15 percent. Food inflation is 10.54 percent in urban areas and non-food inflation is 8.98 percent. In rural areas, food inflation is 10.39 percent and non-food inflation is 9.26 percent.

MA Mannan, the chairman of the Standing Committee on the Ministry of Planning, said there is nothing to fear about the existing inflation. He said to Bonik Barta, "A decade ago, the inflation rate was 5 percent. Since then, it has increased to 9 percent, meaning the inflation rate has increased very slowly. During this time, people's income has increased as well. So, people accepted it. In rural areas, people are confident in such situations. Besides, the government sells reasonably priced products, providing 'Family Card' to 1 crore families. TCB sells products at a lower price. If these steps are not taken, the inflation rate may rise to 14-15 percent. It is prevalent to raise inflation at the primary phase, this should be accepted."