Demand-driven pressure escalating inflation
Wednesday, 31 October 2007
Shakhawat Hossain
An official report has identified high prices of petroleum and food grains in the world market and constraints in domestic supply as impediments to control inflation, sources said.
These factors are operating as major impediments, although the government is trying hard to contain the rising inflationary trend, said the report prepared by the Ministry of Planning (MoP) in connection with the Poverty Reduction Strategy (PRS).
The MoP prepared the report with suggestions for brining changes in the key macro-economic indicators after the PRS has been extended by one year ending fiscal year 2007-08.
The report was placed before a PRS review meeting chaired by noted economist Wahiuddin Mahmud Sunday last and said that demand-driven pressure was escalating the inflationary pressures.
"A pressure on demand has been observed, which is attributed to improvements in standard of living of the people of the country," said the report.
The meeting, according to the sources, expressed concern over the rising trend of inflation that is posing a serious threat to macro-economic stability.
It emphasised the need for increasing credit supply to the agriculture sector so that farm output can be increased to meet the growing demand.
The meeting was told that the country had to spend substantial amount of foreign currencies to import food items in the recent years.
Focusing on the inflation, the report said higher growth in money supply and private sector credit disbursement to non-productive sectors and continued government borrowings from the domestic banking system are also contributing to higher inflationary pressure.
Average inflation was 7.2 per cent in the last fiscal. It is projected to rise to 8.0 per cent in the current fiscal.
The report, however, expected that average inflation would decline to 7.5 per cent and 7.0 per cent in the fiscal year (FY) 09 and FY 10 respectively.
According to the report, inflation is a crucial factor for successful implementation of targets under the PRS.
Lower inflation contributes indirectly to growth by increasing the level of efficiency of private investment. Lowering the level and variability of inflation may provide substantial benefit to the poor, added the report.
An official report has identified high prices of petroleum and food grains in the world market and constraints in domestic supply as impediments to control inflation, sources said.
These factors are operating as major impediments, although the government is trying hard to contain the rising inflationary trend, said the report prepared by the Ministry of Planning (MoP) in connection with the Poverty Reduction Strategy (PRS).
The MoP prepared the report with suggestions for brining changes in the key macro-economic indicators after the PRS has been extended by one year ending fiscal year 2007-08.
The report was placed before a PRS review meeting chaired by noted economist Wahiuddin Mahmud Sunday last and said that demand-driven pressure was escalating the inflationary pressures.
"A pressure on demand has been observed, which is attributed to improvements in standard of living of the people of the country," said the report.
The meeting, according to the sources, expressed concern over the rising trend of inflation that is posing a serious threat to macro-economic stability.
It emphasised the need for increasing credit supply to the agriculture sector so that farm output can be increased to meet the growing demand.
The meeting was told that the country had to spend substantial amount of foreign currencies to import food items in the recent years.
Focusing on the inflation, the report said higher growth in money supply and private sector credit disbursement to non-productive sectors and continued government borrowings from the domestic banking system are also contributing to higher inflationary pressure.
Average inflation was 7.2 per cent in the last fiscal. It is projected to rise to 8.0 per cent in the current fiscal.
The report, however, expected that average inflation would decline to 7.5 per cent and 7.0 per cent in the fiscal year (FY) 09 and FY 10 respectively.
According to the report, inflation is a crucial factor for successful implementation of targets under the PRS.
Lower inflation contributes indirectly to growth by increasing the level of efficiency of private investment. Lowering the level and variability of inflation may provide substantial benefit to the poor, added the report.