Price stability for alleviating poverty
Saturday, 13 November 2010
THE rise of inflation, generally in the economic context, is understood to be a phenomenon that may be caused by multiple factors such as fall in production and supplies, excess money supply, failure to reach goods and services smoothly to markets, higher consumer power or demand from consumers, etc. The inflationary controls, therefore, range from addressing specific problems such as shortages in markets by augmenting supplies to putting in place proper monetary policies while keeping a close eye on demand-side factors in relation to supply situation.
According to the latest reports in the media, the annual inflation rate increased to 7.87 per cent at the end of August 2010. The reports quoted the monthly economic update of Bangladesh Bank (BB). The update was reported to have stated that the 12-month average annual inflation rate was 5.60 per cent in August last year. The rise in inflation over the period, as the updated report noted, has shot past the target that was set by the central bank within which inflation was sought to be contained. However, the unofficial measures suggest the rise in inflation has already reached and crossed the double-digit mark.
No any specific cause has been mentioned in the media reports that quoted the BB’s update on the price situation. But it appears from other data that the rising food prices are the main cause of the higher inflation. Unofficial statistics show that in the time span between October 2009 and October 2010, the rise in the price of even coarse rice was some 35 per cent and that of ata (flour), 40 per cent. Food grains are the price leaders in the country. The prices of a basket of essential commodities and services tend to be pulled up by higher prices of cereals. The sellers and providers of these goods and services respectively justify hiking up of the goods and services they offer on grounds that they have to buy the basic consumption item, rice or flour, at higher prices. Thus, the recent upswing in prices and charges does otherwise have vital linkage with stabilizing and reducing the prices of basic foods.
Yet then, it needs recognition and understanding that in the Bangladesh situation, the inflation rate is also largely or, at times, disproportionately influenced against consumers’ interests by factors which are not necessarily economic. For examples, as mentioned, any rise in food prices provides the trigger for suppliers of other goods and services to unreasonably push up the products and services as a sort of compensation mechanism. Then, there are factors like market distortions or imperfections, inefficient or completely lacking monitoring activities, extortion of businesses, regular toll collection, etc. All these also provide the excuse to business operators to demand higher prices on grounds of higher costs of doing business. Therefore, all related economic and non-economic factors merit a close scrutiny for devising appropriate policies to help curb inflationary pressures. In the Bangladesh situation, the addressing of these non-economic factors on a sustainable basis must not be relegated to the background.
Inflation does not only hurt the interests of the consumers. It also has an adverse impact on allocation of resources, income distribution, investment and all other economic activities. However, the greatest adverse effect of inflation is on the poverty situation. Recent assessments of poverty in Bangladesh found out a stagnant position in relation to poverty alleviation and even some regression specially due to steady loss of purchasing power by non-affluent people on the whole. The unchecked spirals also tend to affect savings both at the individual and national levels. In this situation, it is imperative for inflation-control policies to be innovative. Such policies have to be considered urgent by the economy’s managers for obvious reasons.
According to the latest reports in the media, the annual inflation rate increased to 7.87 per cent at the end of August 2010. The reports quoted the monthly economic update of Bangladesh Bank (BB). The update was reported to have stated that the 12-month average annual inflation rate was 5.60 per cent in August last year. The rise in inflation over the period, as the updated report noted, has shot past the target that was set by the central bank within which inflation was sought to be contained. However, the unofficial measures suggest the rise in inflation has already reached and crossed the double-digit mark.
No any specific cause has been mentioned in the media reports that quoted the BB’s update on the price situation. But it appears from other data that the rising food prices are the main cause of the higher inflation. Unofficial statistics show that in the time span between October 2009 and October 2010, the rise in the price of even coarse rice was some 35 per cent and that of ata (flour), 40 per cent. Food grains are the price leaders in the country. The prices of a basket of essential commodities and services tend to be pulled up by higher prices of cereals. The sellers and providers of these goods and services respectively justify hiking up of the goods and services they offer on grounds that they have to buy the basic consumption item, rice or flour, at higher prices. Thus, the recent upswing in prices and charges does otherwise have vital linkage with stabilizing and reducing the prices of basic foods.
Yet then, it needs recognition and understanding that in the Bangladesh situation, the inflation rate is also largely or, at times, disproportionately influenced against consumers’ interests by factors which are not necessarily economic. For examples, as mentioned, any rise in food prices provides the trigger for suppliers of other goods and services to unreasonably push up the products and services as a sort of compensation mechanism. Then, there are factors like market distortions or imperfections, inefficient or completely lacking monitoring activities, extortion of businesses, regular toll collection, etc. All these also provide the excuse to business operators to demand higher prices on grounds of higher costs of doing business. Therefore, all related economic and non-economic factors merit a close scrutiny for devising appropriate policies to help curb inflationary pressures. In the Bangladesh situation, the addressing of these non-economic factors on a sustainable basis must not be relegated to the background.
Inflation does not only hurt the interests of the consumers. It also has an adverse impact on allocation of resources, income distribution, investment and all other economic activities. However, the greatest adverse effect of inflation is on the poverty situation. Recent assessments of poverty in Bangladesh found out a stagnant position in relation to poverty alleviation and even some regression specially due to steady loss of purchasing power by non-affluent people on the whole. The unchecked spirals also tend to affect savings both at the individual and national levels. In this situation, it is imperative for inflation-control policies to be innovative. Such policies have to be considered urgent by the economy’s managers for obvious reasons.