Inflation, the main concern

The best indicator of any economy is the common people's standard of living. So, from that point of view, it cannot be said that the economy of the country is performing well. To be frank, the per capita income as measured by dividing the Gross Domestic Product (GDP) by the country's population is an abstract figure and does not say much about the actual income of the common people. The latest figure on the nation's per capita income, for example, as told by the Bangladesh Bureau of Statistics (BBS), is US$2,765. In the last financial year (FY 2021-22), it was US$2,793. This means, in the current fiscal, the national per capita income has dropped by US$28, which, in percentage, is equivalent to a reduction of 1.0 per cent from what it was in the last financial year.
But even after the fall, which the BBS attributes to the depreciation of taka against US dollar, the figure for the country's per head annual income in local currency is still Tk298,620 (assuming 1 US$ equal to Tk108 as of May 17). Dividing it by 12, the monthly income of people comes to around Tk 24,885. But does this figure really reflect the actual income of an average citizen? Even if one accepts for argument's sake that the daily wage labourers, rickshaw and pushcart drivers, domestic workers, small traders (hawkers, for instance) and the fixed-income earners in the lowest income category (the so-called Class IV employees) really earn this amount of money every month, will it be enough to feed an average four-member family, let alone meet its other costs including house rent, healthcare and education for children? But the truth is the low-income people, who make up the overwhelming majority of the population, earn far below that amount. And given the galloping prices of essential commodities, rising transport fares and inflating healthcare costs, it is becoming increasingly difficult even for the average middle-income families to make both ends meet. In truth, it is the runaway inflation that is now the main concern of the members of the general public. At a recent discussion event organised by the Bangladesh Institute of Development Studies (BIDS), a multidisciplinary development-focused autonomous public research body, speakers stressed the urgency of bringing the inflation under control. When the inflation rate is falling in the global context, it is showing an upward trend in Bangladesh, they pointed out. In last March, the Consumer Price Index (CPI) rose to as high as 9.33 per cent, though last month (in April) it slightly fell to 9.24 per cent. Compared to last year (April, 2022), when the CPI was 6.29, last April's CPI figure at 9.24 registered an increase of 2.95 percentage points. This is as good as saying that the CPI in April 2023 increased by close to 47 per cent [increase in percentage points (2.95) divided by the base year's (April 2022's) CPI(6.29)].Of course, the depreciating taka against the US dollar (USD) is directly connected to the rising prices of imported commodities including food grains, edible oils and spices, which is driving up inflation. But food prices are falling, not increasing, in the international market. Even so, the prices of those goods in the local market are showing no sign of decreasing. One of the speakers, Ahsan H Mansur, executive director of the private think tank, Policy Research Institute, held that difference in taka-USD exchange rate may account for 20 to 25 per cent increase in commodity prices. But the prices of edible oil and sugar both of which are mostly imported commodities have gone up by 100 per cent. How to explain it? So, there is no shortcut way of explaining away the inflation as the product of depreciation of taka, Ukraine war and so on and so forth.
The falling forex reserve has evidently triggered an increase in the demand for USD, a factor driving down the value of taka. It is common knowledge that it (forex reserve crisis) has been falling due mainly to the decline in the volume of inward remittance through official channel and the earning from export staying at a moderate level. The government has already been exercising austerity, especially in terms of government expenditures in foreign currency as well as import control. Meanwhile, the current account is also running a deficit of US$2.21 billion during the last three quarters of the current fiscal year, though during the same period in the last fiscal it was enjoying a surplus of US$11.92 billion, the Bangladesh Bank (BB) records say. A negative current account balance is not in itself alarming, but it may not be so when the foreign currency earning is on the decline and the forex reserve is fast depleting. What is further concerning is that in such a situation businesses as well as individuals try to save US dollar thereby further depreciating the value of taka. Obviously, such behaviour on the part of some businesses and individuals leads to pushing up inflation. The 9.0 per cent interest rate cap, some economists suggested, should be withdrawn to make funds costlier with a view to taming inflation. But there is no silver bullet to address a problem as complicated as inflation. To be fair, leaving everything to the market is also not going to resolve the issue.
So, the government will have to adopt a raft of measures to control inflation. A foolproof measure has to be put in place to deal with hundi-a major driver of taka's depreciation against USD as well as the fall in the forex reserve. To reduce hundi's demand, corporate management has to be strengthened. Also, transfer of remittance dollars should be made easier and faster.

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