Inflation triggers in Bangladesh

Undeniably, inflation was fuelled first by COVID impacts and then Russia-Ukraine war. The prime cause of inflation is attributed to these two factors. But are they the exclusive triggers? We cannot sidestep our own inactivity, and failures. Triggers of inflation are many and need to be identified with an inclusive approach. It is also necessary to categorise the triggers on the basis of controllability. We should explore new and less-discussed or unfocused triggers of the inflationary pressure. Unfortunately, no comprehensive empirical study on the reasons of the inflationary pressure has yet been carried out.
Based on the degree of control, the triggers of inflation may be of three types: controllable, semi-controllable, and uncontrollable. For example, Russia-Ukraine war is an uncontrollable factor. This is not the point of focus here. What we could or can control is our basic point of attention, analysis and determining courses of action. Rise in fuel price is fuelling the prices of almost all other goods. This factor is not fully uncontrollable, rather semi-controllable as our planned, conscious and responsible efforts could resolve the problem to a considerable extent.
Bangladesh's economy is predominantly private sector-led. Several observations indicate that a section of entrepreneurs is not doing business ethically. They are concerned with profiteering drives, exploiting the small and middle size traders and businesses by taking advances against merchandise, but delivering ordered goods far less than the value of advance taken, and in many cases, causing unusual delay in delivery as a result of which, in some cases , transportation costs for waiting carriers arranged by intermediate buyers go up. This situation applies to sugar, oil, and flour, ata etc. and results in a price hike. There exists no authority to oversee and control such business malpractices.
Public spending is diverted partially by way of corruption and consequently, a portion of corruption-borne money is spent on unproductive activities with no additional production of goods and services. Apart from this, lack of austerity in public expenditure management, particularly cost of largely unproductive projects, luxurious vehicle facilities, and huge wastage of public fund sunk in abandoned projects spark the inflationary pressure. The government is compelled to borrow, but what matters is what we do with the borrowed money. We have to finance development expenditure and even debt repayment mostly with credit.
Credit utilisation by both public and private sectors matters a lot. Do banks monitor credit utilisation of borrowers' firms or businesses? Actually, lenders emphasise recovery rather than proper utilisation of credit. In fact, utilisation is not strictly supervised. Here lies a great source of rising inflation. COVID- time incentive packages led to significant credit flows at a subsidised interest. Recovery performance of such credit as well as previous loan disbursement is poor. Defaulted loan has been mounting alarmingly. Diverted fund might have been spent for consumption. Besides this, private consumption has significantly risen. Is it totally income- backed ? If not, unproductive expenditure with credit might make inflation go up.
Rational behaviour of buyers is an issue. Most of the limited income people downscale their consumption owing to price hike, but a great many people go on buying as before as if there were no price hike. Buyers are not united and consciously organised to fight against price hike .The members of the young generation are not taking the matter seriously. Digital addiction which may rather be called 'modern age opium' for the young section deter them from standing against all sorts of exploitations, oppressions, and discriminations. This mind-set of the young, and political as well as administrative laxity or patronage pave the way for malpractices by ill-motivated businessmen. Greedy and overnight wealth-makers are taking advantage of such irrational and silent buyers.
Supply side of inflation should be examined. Bangladesh Economic Review( BER) 2023 reveals that production of fish, meat, milk and eggs increased gradually till FY 22. But a sharp decline occurred in FY23 (except fish which continued to rise in FY 23 too). Food grain production is increasing but we cannot but import. Fortunately, import of food grain is decreasing. BER 2023 also discloses that production volume in cottage, micro, small, medium and large manufacturing sectors constantly grew during the period after FY16 to FY23. Besides this, GDP growth continued to be positive till FY23. Supply side is, therefore, free from disruption. Demand-supply gap cannot be so big that it can be a cause of prevailing higher inflation rate.
We have to depend on import for many products and hence, we need to calculate the incremental cost of import due to higher foreign exchange rate and to determine how much inflationary pressure can be attributed to that additional import cost. Do we have clear estimates of requirements, demand for goods and services, exact quantity of supply of various commodities, and inventory level? Proper accounting for these variables is crucial for inflation analysis.
We know that any rise in cost of production, and reduction in quantity of production may usually trigger price hike and ultimately spur inflationary pressure. But questions crop up when industrial as well as service sector entrepreneurs resort to unethical pricing (more than actual rise in input cost) on the plea of any sort of rise in input costs. This pricing manipulation has been a regular malpractice.
The word 'Syndicate ' is voiced so widely, but few people understand its meaning. Actually, there is no market or group of businessmen in the name of 'Syndicate' that designs price hike of commodities. The term 'Cartel' is rather very common in business and economics. As the word "Syndicate' has been popularised to connote price manipulation, we can define 'Syndicate' as a group of unscrupulous, influential businessmen engaged in hoarding, black-marketing and raising prices of particular commodities to exploit unethical profit. The misdeeds of such syndicates are largely responsible for the surging inflation. This is no more secret or false as our commerce minister unambiguously admits the fact.
As regards inflation driven by excess money supply, it is learnt from a BB's policy note ( PN 2023-01) that the central bank counter-balanced the excess of money supply through note issue ( for the purpose of lending to the government ) by way of selling dollars to commercial banks. Transaction profile if disclosed could have presented the real scenario. How much dollars at what value were sold to the banks, and the volume of excess money supply through note issue are not reported.
One of the leading triggers of inflation is currency depreciation-- the last, not the least. PN 2023-01 mentions that depreciation catalysed a rise in import prices, thus contributing to inflationary pressures. Our currency against US dollar experienced a considerable depreciation. It is quite incomprehensible that our deprecation is 13.8 per cent (current rate is sure to escalate much more) while neighbouring country's (India) currency depreciated just 4.3 per cent. China, Malaysia, Indonesia experienced depreciation at a level far lower than that of Bangladesh. What are our fundamental weaknesses to avert such big depreciation? Who can take this responsibility of higher foreign exchange rate due to lack of prudent foreign exchange and trade management? This higher rate has had a significantly adverse impact upon the inflation rate.
A surprising fact is that The Agricultural Marketing Rules 2021 has made a provision for a very high percentage of profit ( stated in the Form 10) to be charged on the cost of acquisition of goods by whole sellers and retailers for setting the selling price of any agricultural commodity. The government itself legally advocates for a profiteering motive, especially for the middlemen engaged in the agricultural distribution channel. Middlemen's benefit in terms of profit would normally far outweigh that of farmers as their share of profit ranges from 40 per cent to 55 per cent on cost.
Finding a solution to the inflation problem requires an in-depth investigation of all possible direct, indirect, and hitherto undiscovered triggers. Experts' opinions rather than bureaucratic solutions are a prerequisite for designing appropriate strategies to fight against the serious unhealthiness of the economy.

Haradhan Sarker, PhD, is ex-Financial Analyst, Sonali Bank & retired Professor of Management. sarkerh1958@gmail.com