Persisting high prices of goods and services despite government interventions have prompted the finance authorities to begin brainstorming to fix the defiant hikers, with focus on demand-pull and cost-push factors.
Through the study they want to examine the impact of output gap and the relative contributions of demand-pull and cost-push factors to keeping inflation inexorably high.
Demand-pull is a form of inflation which refers to instances when demand for goods and services exceed their available supply in the economy.
Economists suggest that prices can be pulled up by an increase in aggregate demand that outstrips the available supply of goods in an economy, as per a cue given in investopedia.com.
On the other hand, cost-push inflation, which is also known as wage-push inflation, occurs when overall prices increase due to increases in the cost of wages and raw materials.
Higher costs of production can decrease the aggregate supply, or the amount of total production, in an economy. If demand for affected goods hasn't changed, the price increases from production are passed on to consumers, creating cost-push inflation, the investopedia says.
Finance officials are in a quandary as to why inflation does not take a downturn despite various measures taken by the government, including fiscal interventions like tax cuts or waivers.
People have suffered from unbearably high inflation since the war broke out in Ukraine in early 2022. Ever since, a double-digit rate of inflation has pushed lower-middle-income group and poor segment of people onto streets to run behind trucks selling commodities at subsidised prices. In 2024, the monthly average inflation rate was 10.34 per cent in the country.
Sources say Finance Division officials are also studying the sensitivity of Bangladesh's inflation and output gap to changes in Taylor's Rule Parameters. Under this topic, they are investigating the domino effect of changes in the parameters-inflation target, output gap, real interest rates-on inflation, output, and gross domestic product (GDP) growth in Bangladesh.
Taylor's Rule is a formula tying a central bank's policy rate to inflation and economic growth, which was developed by economist John Taylor back in 1993.
According to officials concerned, the finance division is also studying eight more priority areas of Bangladesh's macro-economy to fix the problem that all quarters fret over.
Also under study are the major factors influencing private consumption in Bangladesh, including disposable incomes, inflation expectations, remittances, and government's social-safety-net recipe.
Moreover, the officials are examining the macroeconomic effects of remittances on inflation and exchange rates in Bangladesh. Under this topic, they are focusing the impact of partner countries' growth, and broader macroeconomic implications of remittance inflows on inflation, exchange rates, and Bangladesh's monetary policy.
Sources say a study is underway to check how changes in GDP acceleration, the potential GDP, and fluctuations in real interest rates affect real private investment in the country.
Also being investigated the key determinants of the GDP deflator in Bangladesh, including sectoral output changes, commodity-price fluctuations, and policy interventions. They are assessing the relationship between the GDP deflator and consumer price inflation (CPI).
The finance officials are also looking into the key factors like income, interest and inflation expectations that influence the demand for money in Bangladesh, and how monetary policy can respond to changes in demand.
How changes in real GDP, real effective exchange rate (REER), and the global commodity prices, like of oil or food, affect Bangladesh's import demand, and what strategies can mitigate adverse impacts on the economy are also being anatomised.
Last but not least, the inflation study examining the impact of exchange rates and partners' GDP and trade policies on Bangladesh's export function as well as the relationship between unemployment and output gap in the country.
syful-islam@outlook.com
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