Supply chain disruptions fuel inflation

With frequent disruptions of the food-supply chain during the ongoing countrywide blockade and hartal, the consumer price index (CPI) on the food basket registered a sharp rise last month.
In fact, political unrest in the country has fuelled up the price indices. As a result, food inflation has increased through supply-chain cut.
The Bangladesh Bureau of Statistics (BBS) data, however, showed last week that the overall point-to-point inflation rate last month fell further to 6.04 per cent, despite the rise in inflation on food account.     
However, the BBS said the rate of food inflation increased 0.21 percentage points to 6.07 per cent in January of the current financial year (FY) 2014-15 from 5.86 per cent in the previous month.
The non-food inflation-expansion rate, however, was recorded lower in the last month to 6.01 per cent as compared to 6.48 per cent recorded in the previous month.
According to the BBS data, the inflation rate in January was 0.07 percentage points higher than the rate in December (6.11 per cent) and 1.46 percentage points up from the rate of the corresponding period of last FY2014 (7.50 per cent).
However, petroleum-price slump on the world market cooled down the non-food price index last month.
Economists say the slightly higher CPI of the food basket in a single month is not a matter of concern for an economy.
The point-to-point inflation started falling in July this fiscal (7.05 per cent) as the CPI has been on a downturn.
The general CPI on the point-to-point basis in January increased to 210.12 from 207.78 in the previous month of December, the BBS data showed.
However, according to the BBS, the point-to-point inflation in the rural areas had also fallen in the last month to 5.19 per cent from 5.89 per cent in December. In the urban areas, the inflationary trend in January dropped slightly to 6.48 per cent from 6.50 per cent in December this FY2015.
However, the government high-ups are hopeful about keeping the average inflation within the targeted 6.5 per cent limit in the current FY.
In the current fiscal, the government has targeted to check the inflation within a limit of 6.0 to 6.5 per cent.
Bangladesh was hard hit by the inflationary pressure in 2010-11 year when the point-to-point inflation crossed double-digit mark from a cool 7.54 per cent in November 2010.
Meantime, prices of daily essential commodities have witnessed further hike in the cities, as the ongoing blockade, coupled with the recent spell of hartal, severely disrupted the overall supply chain.
Goods-carrying transports are failing to arrive in the city for lack of adequate security, fearing arson attacks amid the blockade-hartal. As a result, it is difficult to ensure smooth supply chain of essentials.
On the contrary, prices of various items have declined drastically at farmers' level due to the transportation halt that also affected procurement, leaving farmers in a quandary.
Prices of most of the commodities, including rice, meat, fish, pulse, onion, chilli, ginger, foreign spices, loose soybean oil, potato and vegetables, increased by 11 per cent (rice) to 60 per cent (vegetables) during more than one month's of blockade in the cities like Dhaka and Chittagong.
Rice prices increased further by Tk 1-2 per kg at retail level in the last seven days. Coarse variety Swarna was sold at Tk 37-38 per kg on Tuesday, while Brridhan-28 at Tk 42-45, and Miniket at Tk 48-54 per kg.
Onion price increased by Tk 4 to 6 per kg, both at wholesale and retail levels, in the last two days despite its peak harvesting season, said traders at key kitchen markets.
Transportation cost of each truck to the city has almost doubled, and it is now Tk 30,000-33,000 from Pabna and Meherpur, and Tk 20,000-22,000 from Faridpur,
On the other hand, economists lave expressed scepticism about the attainment of targets set in the latest Monetary Policy Statement (MPS) in view of adverse impact of the ongoing political impasse on the country's trade and economic activities. They say, the economy is now passing through stagflation following the political unrest.
Stagflation is a state of economic situation in which some parts are caught in a 'stag' (falling income and employment) mode and some in 'flation' (rising prices) mode.
Economists said the targets for growth and inflation in the MPS announced on January 29 will be challenging under the present state of political unrest that began from January 05.
The 6.5 per cent inflation target is realistic while the 6.5-6.8 per cent GDP (gross domestic product) growth assumption is somewhat ambitious considering the observed trends in growth correlates in the first half of FY15 and the ongoing political instability.   
They said the economy is currently passing through an adverse supply shock induced by disruption in the transportation system as a result of the ongoing political unrest.
Consequently, using the standard macro-economic demand management for controlling inflation and supporting growth has become especially challenging, they added.
Economic analysts are of the opinion that the economy must come out of the current state of stagflation to attain its desired goals.
They say, lending rate ceiling on agricultural credit has been lowered from 13 per cent to 11 per cent, but farm incomes have been adversely hit by the recent supply chain disruptions. Cheaper credit may otherwise help farmers cope with this situation provided they do indeed get access to agricultural credit at this lower cap.
In fact, lower level of inflation is required for luring investment and inflation could have been lower if there were no supply chain disruptions of the essential commodities across the country.                                             
szkhan@dhaka.net