Taming inflation a daunting task
Thursday, 14 June 2007
Shahiduzzaman Khan
Inflation and prices of essentials are much-talked about issues in Bangladesh these days. Both are inter-linked. When prices jump in the markets, there in a inflationary trend. Due to sudden rise in prices of some essentials, prices of other commodities also tend to triggering inflation across the country. Imbalances in aggregate demand and aggregate supply generally induce price inflation.
Finance Adviser Mirza Azizul Islam, in his recent budget speech, expressed optimism about containing inflation. Import duty of a number of essential commodities including crude edible oil, rice and lentils has been withdrawn. Bangladesh Bank has given directives to all commercial banks to provide credit facilities on softer terms for new imports. Besides, 0.8m tonnes of food grains will be imported in addition to the private sector imports to tackle the overall food deficit. In order to build up an adequate internal stock, there will be internal procurement of food grains in addition.
Spelling out these measures in his speech, the finance adviser said the government is continuing its efforts to make the markets of agricultural products more tolerable. Four more wholesale markets in four corners of the Dhaka city will be established to ensure smooth supply of essential commodities. Besides, the National Task Force and the task forces at district and upazila level comprising government and non-government representatives are regularly reviewing prices of essential commodities.
But the question is: Are these measures adequate enough to put a the brake on the spiralling prices of essential commodities and thereby contain inflation? Do all indicators show a positive outcome? It is really hard to forecast anything right now. Everything depends on the pious will of the government and the ways it handles everything -- prices, businessmen and the imports. And the global situation must be taken into consideration before anticipating an outcome -- be that positive, or negative.
This year, the production of the foodgrains in the country and across the world could not reach the expected level whereas demand has risen. As a result, prices of food grains have increased both at home and abroad. Rice and wheat prices rose in the global markets -- so did the prices of soybean and lentil. Import cost will definitely rise when the government intend to import these. This will bring an inflationary trend.
What is needed at this stage is that the domestic production should be increased. So far poor investment in the agricultural sector, especially in research and crop diversification, has not helped to significantly optimise crop production that resulted in a persistent rise in inflation. Even in the proposed budget, there should have been more substantial allocation in the agriculture research sector. Agriculture should have given top priority ahead of all other sectors. The government has been providing diesel to the farmers at a subsidised rate in order to the keep production cost low. This is to be monitored all the time that the farmers get the benefit of subsidy, not the distributors. The same way, the farmers must get fertiliser at retail prices. There are frequent reports of fertiliser being available in the black market. Indeed, without removing discrepancy and stagnancy in the agricultural sector, the upward spiral of inflation cannot be stopped.
Now, let's see what is the state in inflation in Bangladesh. Inflation rate on point-to-point basis hit a record 8.28 per cent in April this fiscal. The rate of inflation in rural areas was higher than in urban areas. Non-food items saw higher inflation than food items, marking a significant change in the trend of inflation as during the earlier months when prices of food items rose at much higher rates than non-food items. Inflation also surged due to increasing the prices by 21 to 33 per cent of petroleum products by the government.
Bangladesh Bureau of Statistics (BBS) sources said inflation rate could reach 8.0 to 9.0 per cent on point-to-point basis in coming months and on an average, inflation rate at the end of the current fiscal year may stand at over 7.0 per cent.
World Bank Vice-president for South Asia Praful C Patel identified the rising inflation as a significant downside. Disagreeing with the government's position over the issue, he suggested that the government should 'think very hard about it'. Currently, he said, consumer price index inflation in India and Pakistan were 7.6 and 7.7 per cent respectively, in comparison to Bangladesh's 7.4 per cent, which is higher than the central bank's assumed 'comfort level'. However, inflation above the comfortable level will occur and measures against runaway inflation have to be taken, he added.
On the same occasion, Jonathan C Dunn, mission head of IMF in Bangladesh, said although global and regional inflation levels are comparable to the levels in Bangladesh, it is important that the public understand that there is not enough scope for the government to make policy adjustments to rein in the high inflation levels.
Despite significant corrective measures to protect common people from growing inflation, the government might find it difficult to contain it due to the prevalent international market situation. It is a miracle that an economy which is continually subjected to so many anti-growth factors such as corruption, hartals and natural disasters, has come a long way to a void an episode of a hyper inflation or an economic depression. The government must face the challenges that lie ahead and accomplish the tasks successfully with the people's support.
Inflation and prices of essentials are much-talked about issues in Bangladesh these days. Both are inter-linked. When prices jump in the markets, there in a inflationary trend. Due to sudden rise in prices of some essentials, prices of other commodities also tend to triggering inflation across the country. Imbalances in aggregate demand and aggregate supply generally induce price inflation.
Finance Adviser Mirza Azizul Islam, in his recent budget speech, expressed optimism about containing inflation. Import duty of a number of essential commodities including crude edible oil, rice and lentils has been withdrawn. Bangladesh Bank has given directives to all commercial banks to provide credit facilities on softer terms for new imports. Besides, 0.8m tonnes of food grains will be imported in addition to the private sector imports to tackle the overall food deficit. In order to build up an adequate internal stock, there will be internal procurement of food grains in addition.
Spelling out these measures in his speech, the finance adviser said the government is continuing its efforts to make the markets of agricultural products more tolerable. Four more wholesale markets in four corners of the Dhaka city will be established to ensure smooth supply of essential commodities. Besides, the National Task Force and the task forces at district and upazila level comprising government and non-government representatives are regularly reviewing prices of essential commodities.
But the question is: Are these measures adequate enough to put a the brake on the spiralling prices of essential commodities and thereby contain inflation? Do all indicators show a positive outcome? It is really hard to forecast anything right now. Everything depends on the pious will of the government and the ways it handles everything -- prices, businessmen and the imports. And the global situation must be taken into consideration before anticipating an outcome -- be that positive, or negative.
This year, the production of the foodgrains in the country and across the world could not reach the expected level whereas demand has risen. As a result, prices of food grains have increased both at home and abroad. Rice and wheat prices rose in the global markets -- so did the prices of soybean and lentil. Import cost will definitely rise when the government intend to import these. This will bring an inflationary trend.
What is needed at this stage is that the domestic production should be increased. So far poor investment in the agricultural sector, especially in research and crop diversification, has not helped to significantly optimise crop production that resulted in a persistent rise in inflation. Even in the proposed budget, there should have been more substantial allocation in the agriculture research sector. Agriculture should have given top priority ahead of all other sectors. The government has been providing diesel to the farmers at a subsidised rate in order to the keep production cost low. This is to be monitored all the time that the farmers get the benefit of subsidy, not the distributors. The same way, the farmers must get fertiliser at retail prices. There are frequent reports of fertiliser being available in the black market. Indeed, without removing discrepancy and stagnancy in the agricultural sector, the upward spiral of inflation cannot be stopped.
Now, let's see what is the state in inflation in Bangladesh. Inflation rate on point-to-point basis hit a record 8.28 per cent in April this fiscal. The rate of inflation in rural areas was higher than in urban areas. Non-food items saw higher inflation than food items, marking a significant change in the trend of inflation as during the earlier months when prices of food items rose at much higher rates than non-food items. Inflation also surged due to increasing the prices by 21 to 33 per cent of petroleum products by the government.
Bangladesh Bureau of Statistics (BBS) sources said inflation rate could reach 8.0 to 9.0 per cent on point-to-point basis in coming months and on an average, inflation rate at the end of the current fiscal year may stand at over 7.0 per cent.
World Bank Vice-president for South Asia Praful C Patel identified the rising inflation as a significant downside. Disagreeing with the government's position over the issue, he suggested that the government should 'think very hard about it'. Currently, he said, consumer price index inflation in India and Pakistan were 7.6 and 7.7 per cent respectively, in comparison to Bangladesh's 7.4 per cent, which is higher than the central bank's assumed 'comfort level'. However, inflation above the comfortable level will occur and measures against runaway inflation have to be taken, he added.
On the same occasion, Jonathan C Dunn, mission head of IMF in Bangladesh, said although global and regional inflation levels are comparable to the levels in Bangladesh, it is important that the public understand that there is not enough scope for the government to make policy adjustments to rein in the high inflation levels.
Despite significant corrective measures to protect common people from growing inflation, the government might find it difficult to contain it due to the prevalent international market situation. It is a miracle that an economy which is continually subjected to so many anti-growth factors such as corruption, hartals and natural disasters, has come a long way to a void an episode of a hyper inflation or an economic depression. The government must face the challenges that lie ahead and accomplish the tasks successfully with the people's support.