Manufacturers count higher cost of production

Producer prices in Bangladesh rose significantly under the impact of tightening monetary policies and restrictions on imports, with an adverse domino effect on the economy.
The Producer Price Index (PPI), which tracks the prices businesses receive for goods and services, increased by over 7.0 per cent year on year in July, the first month of fiscal year 2024-2025, according to data from the Bangladesh Bureau of Statistics (BBS).
It also shows on a month-on-month basis, the PPI edged up by 0.28 per cent.
Among sectors, the manufacturing of tobacco recorded the sharpest increase, with producer prices surging over 18 per cent, driven largely by higher taxes and import restrictions.
Paper and paper-related products ranked second, registering more than a 14-percent rise in cost prices of products.
Wood and wood products and beverages also saw substantial increases, with PPIs rising approximately 13 per cent each in July.
The clothing sector, which accounts for around 43 per cent of the PPI weighting, experienced an 11-percent rise.
Food product marked a rise by 5.4 per cent, leather and leather-related goods up by 7.8 per cent pharmaceuticals nearly 8.0 per cent and textiles up by 4.7 per cent
In the same month, overall consumer inflation stood at 11.66 per cent, with food inflation exceeding a steep 14 per cent.
Economists point to the Bangladesh Bank's (BB) contractionary monetary policy, in effect since July 2023, and import-compression measures as key factors behind the surge in the PPI.
"Tight monetary policy reduces the money supply and squeezes loan facilities for producers," says Dr M. Masrur Reaz, Chairman and CEO of Policy Exchange.
"Higher labour costs due to inflation have contributed to the rise in production costs and, consequently, the PPI."
Dr Mohammad Yunus, Research Director of the Bangladesh Institute of Development Studies (BIDS), highlighted the role of foreign -exchange-reserve pressures since the onset of the Ukraine war in 2022.
"The central bank had to raise the letter of credit (LC) margin, making imports costlier for both consumer and industrial goods," he explains.
"This has exacerbated inflationary pressures, pushing the PPI upward."
Md. Ashanur Rahman, Chief Economist and Country Business Manager at City Bank, notes that tight monetary policy and higher borrowing costs create additional challenges for businesses.
"When production costs remain high due to borrowing constraints, supply- chain disruptions, or global commodity- price fluctuations, upward pressure on the PPI persists," he says.
However, both the PPI and the Consumer Price Index (CPI) are vital economic indicators, although they measure prices from different perspectives.
The PPI captures prices at the first commercial transaction for a product, whereas the CPI reflects price changes at the consumer level.

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