Mixed inflationary trend
Sunday, 8 January 2012
On the inflation front, there are both good news and bad news. The point-to-point food inflation in December last was down by 2.07 per cent and non-food inflation up by 1.19 per cent compared to those of the previous month. Thus, overall point-to-point inflation fell marginally by 0.95 per cent to 10.63 in December, which is still considered rather high. The decline in food inflation is attributed mainly to a good Aman production and fall in prices of vegetables. However, the rise in non-food inflation during the last few months came in contrast to the past trend when food-inflation soared unabatedly with the former maintaining a very modest increase.
It was obvious that fuel and power which were made costlier by the government in a bid to reduce its subsidy burden had pushed the non-food inflation up. The process of hiking both power tariff and fuel prices is still on and the same is most likely to continue for some more time as the government is bent upon lowering its fund subsidy burden as early as possible. This move coupled with the greenback becoming costlier against Bangladesh Taka (BDT), most imported food and non-food essentials are now feared to become even expensive in the coming days. What is worse is that the foreign shipping lines have reportedly hiked their freight rates as a measure to compensate the loss they incur following lesser export-import activities through Bangladesh seaports. Rice price may continue to remain stable but fish and vegetables, in all probability, might become expensive after a couple of months with their supplies falling as usual in March and thereafter.
Thus, fall in food inflation might be temporary with a reverse trend setting in soon. If not others, the central bank has read the situation well and it has again increased the policy rates -- Repo and reverse-Repo -- last Thursday with an aim to curb inflation by reining in money supply. Normally, in the event of any noticeable decline of the rate of inflation, the central banks tend to cut key lending rates to help boost investment and economic activities. But the Bangladesh Bank has considered it to be prudent to keep the money supply on a leash for some more time; taking into cognisance the possible impact of the government's high level of borrowing from the country's banking system and other factors, including the depreciation of BDT.
Time and again accusing fingers have been pointed at the government for pursuing a fiscal policy that in fact has otherwise been running counter to the stated objectives of the monetary policy. Instead of giving comfort to the common people, such mismatch has been adding fuel to inflation. Yet the policymakers could not help avoid the borrowing for the sake of meeting some other exigencies including the greater volume of power generation using a highly expensive option -- the liquid fuel-based power plants. It is by now known to all that such power plants, while improving the power situation to a respectable level, have created a lot of distortions in the economy. Those might exact even a greater cost in the coming days if the fuel price goes up abnormally. Signs centring the West's sanctions on Iran are rather ominous. So, it is high time for the government to draw a comprehensive plan to face any eventuality without further aggravating the sufferings of the poor consumers.
It was obvious that fuel and power which were made costlier by the government in a bid to reduce its subsidy burden had pushed the non-food inflation up. The process of hiking both power tariff and fuel prices is still on and the same is most likely to continue for some more time as the government is bent upon lowering its fund subsidy burden as early as possible. This move coupled with the greenback becoming costlier against Bangladesh Taka (BDT), most imported food and non-food essentials are now feared to become even expensive in the coming days. What is worse is that the foreign shipping lines have reportedly hiked their freight rates as a measure to compensate the loss they incur following lesser export-import activities through Bangladesh seaports. Rice price may continue to remain stable but fish and vegetables, in all probability, might become expensive after a couple of months with their supplies falling as usual in March and thereafter.
Thus, fall in food inflation might be temporary with a reverse trend setting in soon. If not others, the central bank has read the situation well and it has again increased the policy rates -- Repo and reverse-Repo -- last Thursday with an aim to curb inflation by reining in money supply. Normally, in the event of any noticeable decline of the rate of inflation, the central banks tend to cut key lending rates to help boost investment and economic activities. But the Bangladesh Bank has considered it to be prudent to keep the money supply on a leash for some more time; taking into cognisance the possible impact of the government's high level of borrowing from the country's banking system and other factors, including the depreciation of BDT.
Time and again accusing fingers have been pointed at the government for pursuing a fiscal policy that in fact has otherwise been running counter to the stated objectives of the monetary policy. Instead of giving comfort to the common people, such mismatch has been adding fuel to inflation. Yet the policymakers could not help avoid the borrowing for the sake of meeting some other exigencies including the greater volume of power generation using a highly expensive option -- the liquid fuel-based power plants. It is by now known to all that such power plants, while improving the power situation to a respectable level, have created a lot of distortions in the economy. Those might exact even a greater cost in the coming days if the fuel price goes up abnormally. Signs centring the West's sanctions on Iran are rather ominous. So, it is high time for the government to draw a comprehensive plan to face any eventuality without further aggravating the sufferings of the poor consumers.