Inflation containment needs innovative measures

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Shamsul Huq Zahid
Life has become rather difficult for the people because of the soaring mercury level of the ongoing summer days and the heat radiated from the markets selling essentials.
The inflation data available now are almost three months' old. However, the trend is ominous. It has been creeping up in the recent months, making the government policymakers, including the finance minister, quite worried.
With the holy month of Ramadan approaching, the movement of essentials' prices could be anybody's guess. The food inflation, obviously, would go a few points up, defying all measures likely to be initiated by the government, including the ministry of commerce.
Though the average monthly rate of inflation (around 6.0 per cent in February last) is not that worrying but the point-to-to point inflation is. The 12-month average point-to-point inflation in February last soared to over 9.0 per cent from 5.81 per cent in the same month a year back. The food inflation (point-to-point) that nearly doubled over a period of one year was largely responsible for the inflationary upswing. It soared to about 12 per cent in February last from 6.15 in the corresponding month in 2009. A good domestic harvest coupled with a substantial fall in commodity prices, including food grains, in the global market had contributed to the decline in food as well as overall inflation during the first quarter of the current fiscal.
The decline in food inflation continued until September last but from October it started rising again. Even a satisfactory production of Aman and Boro rice has failed to dislodge the food-inflation from going up and up. Barring sugar, the prices of most essentials are maintaining their highs.
Different varieties of coarse rice are being sold between Tk 30 and Tk. 36 a kg and fine varieties between Tk 40 and Tk. 45. The minimum price of lentil is Tk 100 a kg and that of garlic between Tk 90 and Tk. 100 a kg. Fish has become dearer with prices going beyond the reach of the common people. The vegetables are quite expensive. The prices of potato and onion are still affordable. But the Ramadan nearing, like all other essentials, those two in all likelihood would start climbing soon.
Experts are expecting further price pressure in the coming months in view of the increased demand for a number of essentials as well as up-trend in commodity prices in the international market.
As the main opposition might soon start using the precipitate rise in prices to raise the political temperature, the government does need to do something to provide relief to the consumers and deprive the opposition of a major weapon generally used to foment consumers' anger.
But until now the actions that the government tends to apply against the price hike, in most cases, have been found to be ineffective. For instance, the government remains enthusiastic about buying food grains from domestic and external sources but it behaves miserly when it comes to selling the same. Rice is sold to poor consumers through some selected dealers only in one or two major cities. Such limited operation fails to create any impact on the food prices. Moreover, a large part of food that is supposed to be made available to the poor consumers is sold to the rice traders in the black market. However, the leakage has a good side that it somehow beefs up, though in a very limited quantity, the supply of food grains in the market.
Rice is one among a large number of essential items that consumers have to buy everyday. The government would obviously like to see the rice prices remaining stable. But what is about the prices of other essentials? High prices of items such as lentils, edible oils, garlic and ginger are also contributing to inflation. These items are mainly imported and sold by private traders. The government can hardly play any role except for requesting the traders to keep the prices of the imported essentials within the reach of the common people. In many cases, such requests are ignored and the consumers are made pay through their noses.
But what can the government do in a situation where the private sector people are major actors? The central bank is often found to use monetary tools to contain inflation. But those are ineffective in controlling the type of inflation that the Bangladesh economy has been witnessing in recent years. The interest rate hike or increase in cash reserve ration (CRR) may address the issue of core inflation but not the supply-related or cost-push inflation.
The government might consider an idea of developing storage capacity in the private sector. Since the government does not import and store any essential other than rice, it should consider encouraging banks to finance on easy terms the private sector efforts to build storage facilities for durable food products. Many traders do not import durable foods in large quantities since they do not have enough storage facilities. Traders know when to buy. The availability of sound storage facilities would help them buy goods and store them when the international prices are low.
One may, however, feel tempted to ask one very pertinent question: Will the traders sell goods in their stock as reasonable prices if their global market prices go up? It is difficult to find an answer. But proper monitoring of both domestic and international markets might help the government to persuade the businesses to behave rationally.