Inflation and cost of living crisis

Bangladesh is facing its most severe cost-of-living crisis in recent history, characterised by the highest inflation in South Asia, projected at roughly 8.9 per cent in 2025 and expected to remain high in 2026. According to the Bangladesh Bureau of Statistics (BBS) data, inflation in Bangladesh increased from 8.17 per cent in October to 8.58 per cent in January this year marking a 5-month high and sustaining a long period of, at times, over 10 per cent food price-driven inflation. Also, supply-side constraints, import costs, and depreciation of the Taka added to the inflationary pressure. The crisis is causing significant cost-of-living distress.
Bangladesh's inflation rate at 8.58 per cent in January, is much higher than in India (2.7 per cent) and Sri Lanka (0.6 per cent). Food prices continue to climb, reaching 8.29 per cent in January this year. The situation does not appear to be improving. The United Nations (UN) projects inflation will remain high at 7.1 per cent in 2026.

In fact, the latest UN report states that Bangladesh is facing a very severe food and inflation crisis among South Asian countries, placing the country at the bottom of the list among seven countries in the region. Because the poor and low-income earners spend a much greater share of their income on food, the current high inflation has a greater negative impact on them. In fact, empirical studies have clearly demonstrated that the rising inflation rate experienced by the poor and low-income groups is much larger than that of non-poor groups.
Approximately 80 per cent of the population are highly susceptible to even minor increases in food prices. As income remains stagnant, each increase in prices diminishes individuals' purchasing power. Worryingly the situation shows no sign of improving any time soon. The cost of living crisis impacts low-income earners in Bangladesh, while the wealthy remain largely unaffected. Now Bangladesh can claim a growing number of USD equivalent millionaires and billionaires.
Although inflation has limited private consumption, public spending remains high. Government expenditure as a percentage of GDP in Bangladesh for 2025 is projected to be approximately 11.45 per cent, reflecting a continued, slight downward trend from 12.03 per cent in 2024. This low level of public spending is driven by a historically low tax-GDP ratio (approx. 6.8 per cent in FY2025) and limited revenue collection, which has forced fiscal constraints on both development and operating budgets. Furthermore, with limited revenue, the budget is heavily burdened by debt servicing as well.
Rising inflation is also contributing to the higher cost of production which is further fuelling inflation. The inflationary surge was largely driven by rising food and fuel prices and the depreciation of Taka. Generally, when inflation is rising, it generates conditions appropriate for further price rises, thus increasing inflation risk.
Soaring food and fuel prices, combined with a 40 per cent devaluation of Taka, have decimated household purchasing power, disproportionately affecting low-income families. The prices of rice, oil, vegetables, and transport have soared, especially affecting middle- and lower-income families.
Governments have struggled with high food and energy prices and persistent inflation. Even though global prices have dropped since mid-2022, domestic costs and risks to food production stay high in Bangladesh, impacting poorer households the most. The government has faced difficult trade-offs in tackling high food and energy prices, as well as core inflation pressures. The price hikes of food items, especially rice throughout the country kept the inflation at an elevated level.
Rising food prices increasingly add to the cost living crisis. As incomes stagnate, any price increase, especially of food items reduce people's purchasing power. Although the cost of living continues to rise, it did not feature as an important topic in the recently held national election which is rather very strange. Effective policy measures have also not been taken to address the structural causes of inflation.
According to the World Bank during the interim government's tenure, more than 2.7 million people have become new poor. Of these, 1.8 million are women. Sluggish investment contributes to unemployment, leading to increased poverty.
Bangladesh has achieved, as claimed, an annual average growth rate of about 6.5 per cent over the last decade and a half. The current macroeconomic crisis is manifested in slowing GDP growth, high inflation and unemployment, looming debt burden and a banking system in deep trouble. Between 2013 and 2023, 1.4 million manufacturing jobs were lost. Youth unemployment is more than double now than the national unemployment rate.
The Household Income and Expenditure Survey (HIES) report for 2022 indicates that average food consumption expenditure accounted for 45.8 per cent of total expenditures in that year; however, this proportion is considerably higher among individuals with lower incomes. The report also said that using the upper poverty line 18.7 per cent of the population live below the poverty line nationally and 20.5 per cent in rural areas and 14.7 per cent in urban areas in 2022. Using the lower poverty line, figures are 5.6 per cent, 6.5 per cent and 3.8 per cent respectively.
In a report published by the WB indicates that Bangladesh's 62 million people who constitute half of non-poor population are now at risk of sliding into poverty. Employment opportunities slowed down since 2016 as industrial growth weakened. More alarmingly, the growth pattern has become less inclusive in recent years. Income inequality in Bangladesh has deepened since 2016.
The Bangladesh Labour Force (BLF) Survey 2022 finds that close to 60 million people, accounting for 84.9 per cent of total working population in Bangladesh are employed in the informal sector. It is also noteworthy that the report also points out that out of the total employed women in Bangladesh, 96.6 per cent are in informal employment.
The Bangladesh Taka (BDT) depreciated from BDT 10 in 1979 to BDT 122 against the USD in early February this year. This has serious implications for a food grain import dependent country like Bangladesh. Rising cost of food items has also been due to demand of a growing population, depletion of natural resources and the onset of climate change disturbing cropping pattern and crop yields.
The BDT's significant depreciation against the USD had made imports more expensive, contributing to the inflationary pressure. The low export growth has resulted in the widening of current account deficits while imports continue to grow in recent months. High import dependency for fuel and food, global commodity price volatility, currency devaluation and alleged market manipulation by syndicates are driving cost upward.
The growth that was achieved under Hasina was over-reliant on political patronage enabling a handful of deeply corrupt industrial groups, who borrowed staggering sums of money with minimal or no collateral and that money then siphoned off to Singapore, Dubai, London, Toronto, New York and many other places.
Bangladesh's economy slowed sharply, according to the IMF's latest review, with growth dropping to 3.8 per cent in FY 2025 amid production disruptions caused by the student-led uprising that toppled the tyrannical and kleptocratic regime of Sheikh Hasina. Weak tax collection, fragile banks and slow reforms continued to strain the economy.
The Bangladesh Bank has maintained a tight monetary policy, and the government is using fiscal measures, such as reducing import duties on essential goods, to curb the inflationary pressure. While the government aims to bring inflation below 7 per cent by June 2026, the country continues to struggle with the highest inflation rate in South Asia, posing challenges for households.
Economic and governance issues have increased living costs, putting basic needs out of reach for many families. By early 2026, the economy faces challenges due to inflation rates consistently between 8 and 8.5 per cent, primarily attributed to rising food prices and ongoing supply-side constraints. Addressing Bangladesh's cost of living crisis-where inflation reached 8.58 per cent in January 2026, largely due to elevated food prices-necessitates concerted government action to improve food supply chains and reinforce social safety nets.

muhammad.mahmood47@gmail.com