Inflation rises by another notch
Tuesday, 27 April 2010
ECONOMIC growth and its fruits, jobs and income, are always the prime objective of the policy planners. This growth needs to be buttressed also by policies designed to keep prices of essential goods and similar services within the purchasing capacity of the common man. In this context, inflation management assumes extraordinary significance in the operation of macroeconomic policies. This is more so in Bangladesh where poverty is a big factor and the challenge remains not only to create more wealth and employment opportunities but also to help the people to escape poverty conditions on a sustainable basis. For example, a number of studies conducted in 2007 showed up that a large number of people who climbed to a position above the category of the poor or very poor from sustained economic growth in the years before, had once again relapsed to their former state of living or worse. Inflation was pointed as the prime reason for their sorry decline.
The latest in the inflation situation as reported in this paper last week is that the point-to-point rate of inflation, as measured in last February, was 9.6 per cent. Food inflation reached 12.32 per cent in the urban areas. The point-to-point inflation rate was 8.99 per cent in January of the present year. The higher inflation prospects were anticipated even during the presentation of the current year's budget and keeping the same well controlled was also pledged by the policy planners. But that intention has not been fulfilled as per the statistics as well as from actual experiences of the consumers. In all appearances, the rate of inflation is close to reaching a double digit level. Thus, it is only appropriate that the economy's economic managers should try out their tools for inflation management tighter and better sooner rather than later.
Inflation control, of course, is a delicate exercise specially in a setting like Bangladesh where tight squeezes in lending to reduce money supply in a bid to address inflation, can have otherwise some undesirable effects on investment operations. However, some analysts have expressed their views that monetary expansion is mainly fuelling the inflation rate. If this is the case, the central bank and related policy making apparatuses will have to go for measures that will effectively address the issues of monetary expansion without hurting the cause of higher investments, so that somewhat tighter money supply growth does not add fuel to the inflationary spree. Here the measures will have to be applied in a fine-tuned manner to ensure that unnecessary growth in money supply is kept under control while the ample need for credits in the truly productive sectors of the real economy continues to be met. If this can be done, then the rate of inflation will remain manageable and the needs for funds and their costs for various enterprisings would be on offer at reasonable rates.
Inflation control in Bangladesh, like in other countries, is not inappropriately seen as mainly a monetary phenomenon. But the consequences of inflation--higher prices of goods and services--are found to be not linked in many areas in Bangladesh not to theoretical reasons of stepped-up money supply. Non-economic activities are, at times, found to be at work and the same also cannot be just explained as caused by 'expectation of inflation' which also economists accept as a cause for inflation. Completely unethical activities of the producers and sellers, their collusion to keep prices high to make super normal profits, extortion activities in the transportation of goods, etc., are among the non-economic factors which also play a role in unjustifiably keeping higher than normal the prices of goods and services. Thus, policy making to keep costs of living on the lower or reasonable side, needs to also address such issues in tandem with monetary policies for inflation management for the best outcome.
The latest in the inflation situation as reported in this paper last week is that the point-to-point rate of inflation, as measured in last February, was 9.6 per cent. Food inflation reached 12.32 per cent in the urban areas. The point-to-point inflation rate was 8.99 per cent in January of the present year. The higher inflation prospects were anticipated even during the presentation of the current year's budget and keeping the same well controlled was also pledged by the policy planners. But that intention has not been fulfilled as per the statistics as well as from actual experiences of the consumers. In all appearances, the rate of inflation is close to reaching a double digit level. Thus, it is only appropriate that the economy's economic managers should try out their tools for inflation management tighter and better sooner rather than later.
Inflation control, of course, is a delicate exercise specially in a setting like Bangladesh where tight squeezes in lending to reduce money supply in a bid to address inflation, can have otherwise some undesirable effects on investment operations. However, some analysts have expressed their views that monetary expansion is mainly fuelling the inflation rate. If this is the case, the central bank and related policy making apparatuses will have to go for measures that will effectively address the issues of monetary expansion without hurting the cause of higher investments, so that somewhat tighter money supply growth does not add fuel to the inflationary spree. Here the measures will have to be applied in a fine-tuned manner to ensure that unnecessary growth in money supply is kept under control while the ample need for credits in the truly productive sectors of the real economy continues to be met. If this can be done, then the rate of inflation will remain manageable and the needs for funds and their costs for various enterprisings would be on offer at reasonable rates.
Inflation control in Bangladesh, like in other countries, is not inappropriately seen as mainly a monetary phenomenon. But the consequences of inflation--higher prices of goods and services--are found to be not linked in many areas in Bangladesh not to theoretical reasons of stepped-up money supply. Non-economic activities are, at times, found to be at work and the same also cannot be just explained as caused by 'expectation of inflation' which also economists accept as a cause for inflation. Completely unethical activities of the producers and sellers, their collusion to keep prices high to make super normal profits, extortion activities in the transportation of goods, etc., are among the non-economic factors which also play a role in unjustifiably keeping higher than normal the prices of goods and services. Thus, policy making to keep costs of living on the lower or reasonable side, needs to also address such issues in tandem with monetary policies for inflation management for the best outcome.