When inflation turns discriminatory
Wednesday, 20 October 2010
Shamsul Huq Zahid
It is little wonder that inflation increased close to 8.0 per cent in August and the hike did hurt the rural people more than the urbanites.
The Bangladesh Bureau of Statistics (BBS) has estimated the overall inflation in August last at 7.52, representing a 0.26 percentage point increase over that of the previous month. The food inflation soared to nearly 10 per cent in August from 8.72 in July while the non-food inflation recorded a fall by 0.89 percentage point to 3.76 per cent in the month under review.
The BBS data show a 0.42 percentage point and 1.37 per cent rise in overall inflation and food inflation respectively in rural areas. But the situation, surprisingly, was reverse as far as overall urban inflation and food inflation were concerned. Both recorded a marginal fall.
A couple of economists, talking to a leading national daily, has attributed the reason behind the opposite trend in inflation to disproportionate rise in rice prices in urban and rural areas and the difference in the consumption basket.
The difference in consumption basket in rural and urban areas has always been a reality since rice alone weighs heavily in the food basket of the rural population.
But disproportionate rise in rice (boiled medium variety) prices--- 31.6 per cent in rural areas and 17.7 per cent rural areas-in last August does indicate to a discriminatory market supervision and intervention mechanism pursued by the government.
In fact the greater part of the holy Ramadan fell in the month of August last when the government had geared up its market monitoring activities, primarily targeting the urban areas, Dhaka city in particular. The administration's first priority has always been to keep the urbanites, who actually decide the country's political course, happy. Whether it finally succeeds in its mission or not is altogether a different question. But the power-that-be tries either through market intervention or via other mechanism to keep the prices of essentials, including the main staple-rice, stable.
The reason for disproportionate rise in prices of rice in urban and rural areas could be the government's market intervention during the holy month of Ramadan. The directorate of food sold rice through its appointed dealers under the Open Market Sale (OMS) operation in Dhaka and other major cities to help keep the rice prices stable. But the same facility was not extended to rural areas effectively at that time.
Compared to that of last August, the prices of most food items, including rice and wheat, have gone further up in recent weeks. The lowest price of coarse variety of rice now hovers between Tk. 34 and Tk. 36 a kg. That the soaring food prices have hit the poor hard is evident from the long queues now seen at the back of trucks selling rice at fair price under the OMS operation.
The government this time has decided to sell rice under OMS at the upazila level. But allegations are galore that a large part of the OMS food fails to reach those who need it most and the same is sold to rice traders at prices higher than the government fixed ones. The rural poor are not as fortunate as their counterparts in urban areas where monitoring by the authorities concerned and media focus is relatively strong.
Going by the trend in food prices, the overall inflation and the food inflation, in probability, have by now gone further up, which, obviously, should be a source of concern for the government. To make things worse, the global food prices have become volatile following crop failures due to floods and drought in some major rice and wheat growing countries.
The situation, according to the UN Food and Agriculture Organisation (FAO) forecast, is unlikely to be as bad as it was in 2007-08 when food prices reached the all-time-high, triggering food riots in some poor developing countries.
Generally, Aman harvest has an influence on the food prices in the domestic market. But even a good Aman harvest this year is unlikely to leave any lasting positive effect on the market because of the government's own low food reserve and the global food price situation. If that really happens, the desire that the finance minister had expressed during his budget speech to contain the inflation at 6.5 per cent during the current fiscal year might prove elusive.
The calculation of inflation is an affair that concerns the policymakers and the economists. But what the poor, living in both rural and urban areas, do deserve is some insulation from the factors that push up inflation. Now it is the responsibility of the government to devise appropriate means to help the poor in their difficult times.
Zahidmar10@gmail.com
It is little wonder that inflation increased close to 8.0 per cent in August and the hike did hurt the rural people more than the urbanites.
The Bangladesh Bureau of Statistics (BBS) has estimated the overall inflation in August last at 7.52, representing a 0.26 percentage point increase over that of the previous month. The food inflation soared to nearly 10 per cent in August from 8.72 in July while the non-food inflation recorded a fall by 0.89 percentage point to 3.76 per cent in the month under review.
The BBS data show a 0.42 percentage point and 1.37 per cent rise in overall inflation and food inflation respectively in rural areas. But the situation, surprisingly, was reverse as far as overall urban inflation and food inflation were concerned. Both recorded a marginal fall.
A couple of economists, talking to a leading national daily, has attributed the reason behind the opposite trend in inflation to disproportionate rise in rice prices in urban and rural areas and the difference in the consumption basket.
The difference in consumption basket in rural and urban areas has always been a reality since rice alone weighs heavily in the food basket of the rural population.
But disproportionate rise in rice (boiled medium variety) prices--- 31.6 per cent in rural areas and 17.7 per cent rural areas-in last August does indicate to a discriminatory market supervision and intervention mechanism pursued by the government.
In fact the greater part of the holy Ramadan fell in the month of August last when the government had geared up its market monitoring activities, primarily targeting the urban areas, Dhaka city in particular. The administration's first priority has always been to keep the urbanites, who actually decide the country's political course, happy. Whether it finally succeeds in its mission or not is altogether a different question. But the power-that-be tries either through market intervention or via other mechanism to keep the prices of essentials, including the main staple-rice, stable.
The reason for disproportionate rise in prices of rice in urban and rural areas could be the government's market intervention during the holy month of Ramadan. The directorate of food sold rice through its appointed dealers under the Open Market Sale (OMS) operation in Dhaka and other major cities to help keep the rice prices stable. But the same facility was not extended to rural areas effectively at that time.
Compared to that of last August, the prices of most food items, including rice and wheat, have gone further up in recent weeks. The lowest price of coarse variety of rice now hovers between Tk. 34 and Tk. 36 a kg. That the soaring food prices have hit the poor hard is evident from the long queues now seen at the back of trucks selling rice at fair price under the OMS operation.
The government this time has decided to sell rice under OMS at the upazila level. But allegations are galore that a large part of the OMS food fails to reach those who need it most and the same is sold to rice traders at prices higher than the government fixed ones. The rural poor are not as fortunate as their counterparts in urban areas where monitoring by the authorities concerned and media focus is relatively strong.
Going by the trend in food prices, the overall inflation and the food inflation, in probability, have by now gone further up, which, obviously, should be a source of concern for the government. To make things worse, the global food prices have become volatile following crop failures due to floods and drought in some major rice and wheat growing countries.
The situation, according to the UN Food and Agriculture Organisation (FAO) forecast, is unlikely to be as bad as it was in 2007-08 when food prices reached the all-time-high, triggering food riots in some poor developing countries.
Generally, Aman harvest has an influence on the food prices in the domestic market. But even a good Aman harvest this year is unlikely to leave any lasting positive effect on the market because of the government's own low food reserve and the global food price situation. If that really happens, the desire that the finance minister had expressed during his budget speech to contain the inflation at 6.5 per cent during the current fiscal year might prove elusive.
The calculation of inflation is an affair that concerns the policymakers and the economists. But what the poor, living in both rural and urban areas, do deserve is some insulation from the factors that push up inflation. Now it is the responsibility of the government to devise appropriate means to help the poor in their difficult times.
Zahidmar10@gmail.com