Economists blame policymakers for failing to tame inflation

FE REPORT | Published: May 18, 2024 21:39:03

Policymakers have signally failed to control inflation in the country as people in the low-income bracket have been hardest hit by skyrocketing prices of essential commodities in recent years.
Economists said this during a session of the Bangladesh Economic Association (BEA) in Dhaka city on Saturday.
People on low incomes are cutting back on savings and expenditure, and also depleting their deposits and assets to cope with this unusual price situation, according to them.
Even many have been leaving cities and going back to villages for this reason.
The economists made the observation during a session of the biennial conference of the BEA on Saturday.
The second day's sessions featured macroeconomics, economic growth, tax management, inflation and global economy.
"People ranging from poor to the middle class have cut back on consumption," said Prof Dr M Azizur Rahman, chairman of economics department at Notre Dame University.
He presented a paper on the impact of inflation and price hike in 2022, 2023 and beyond on different income groups in Bangladesh and measures taken by them to cope with the crisis.
Dr Rahman said higher middle-income groups have started 'dissaving' by halting new savings and encashing old savings and deposits to cope with the situation.
"Global turmoil has certainly contributed to the situation, but poor macroeconomic management has deteriorated the situation."
An integrated effort by all stakeholders is needed to combat unethical and exorbitant price hike, said Dr Foyasal Khan, executive director of Bangladesh Institute of Policy Studies (BIPS).
He presented a paper styled 'Navigating price surge during Ramadan in Bangladesh: An inquiry into the causes and remedial measures'.
He said price surge in Bangladesh could not be explained by economic factors alone, rather a surge in excessive and unreasonable prices are the result of moral crisis among economic agents and lack of upholding ethics in business.
According to the findings of his survey, 97-per cent respondents feel that traders deliberately raise prices during Ramadan.
A study, led by additional director of Bangladesh Bank Omor Faruq, has uncovered a strong positive correlation between money supply and inflation here, thereby emphasising the monetary policy's critical role in managing inflation.
It also identified a statistically significant positive relationship between the exchange rate and inflation, both in the short and long terms.
According to the study, careful management of money supply is essential to stabilise economy.
"Given its empirical significance, policymakers must make judicious adjustments to money supply to effectively control inflation," said a paper styled 'Determinants of Inflation in Bangladesh: A Pre- and Post-Covid Analysis'.
The significant positive correlation in both the short and long run underscores the need for careful consideration of exchange rate policies.
"To mitigate economic disruptions caused by exchange rate volatility, the Bangladesh Bank must play a critical role in minimising such fluctuations."
Another study by BB deputy director Md Yousuf and Associate Prof Mohammad Shafiur Rahman Chowdhury of accounting department of Chittagong University suggests a long-run relationship between global supply chain pressure and domestic inflation.
The study said domestic food inflation was significantly affected by global supply-chain pressure, domestic output gap and global output gap.
The paper recommended that policymakers should be aware of these issues in formulating policies related to controlling the inflation rate.
A study on 'Impact of price hike and inflation on the living standard of students of Comilla University', led by Comilla University's economics professor Shanzida Jahan, found that inflation affected students both financially and psychologically.
"The stress and anxiety stemming from financial insecurity, combined with academic pressure they face, have taken a toll on their mental health," it observed recommending arrangement of financial support or part-time jobs for students.
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