Dr Khondaker Golam Moazzem on inflation and food inflation

Published in The Daily Star on Friday, 9 January 2015.

Inflation lowest in 25 months
Non-food inflation still a worry

Star Business Report

Inflation extended its downward trend in December, coming down to 6.11 percent — the lowest in 25 months, mainly due to falling commodity prices on the global markets.

The overall inflation rate, which has been on the decline for the last several months, was 6.21 percent in November.

In October 2012, inflation was 5.86 percent, which rose to 6.55 percent in November the same year.

Planning Minister AHM Mustafa Kamal released the inflation data at the National Economic Council auditorium in Dhaka yesterday.

He said higher supplies than demand also contributed to the decrease in food inflation.

Food inflation was the biggest driver behind the drop in the overall inflation last month, sliding to 5.86 percent from 6.44 percent in November, according to Bangladesh Bureau of Statistics.

However, containing non-food inflation, which has been rising for a long time, will be a major challenge ahead.

The non-food inflation went up to 6.48 percent in December from 5.84 percent a month ago, because of a rise in house rent, transportation costs, education and medical expenses and prices of other non-food items.

Khondaker Golam Moazzem, additional research director of the Centre for Policy Dialogue, said non-food inflation has registered a rise both in urban and rural areas in almost all components.

“Such a rise in non-food inflation would be temporary if Bangladesh Energy Regulatory Commission considers a downward adjustment of fuel price and consequent downward adjustment of electricity tariff at consumer level,” he said.

The economist also said inflation in the next six months is likely to be at a moderate level. The upcoming monetary policy will not require additional measures to contain inflation, he said.

“Rather the policy should take expansionary measures to attract more private investment.”

The planning minister said they will look into whether house rent caused the hike in non-food inflation.

In October, non-food inflation went up as two major religious festivals took place at the beginning of the month. People’s movement and consumption of non-food items increased ahead of the festivals.

However, though there were no such festivals in December, non-food inflation went up.

Reining in non-food inflation will figure high in the monetary policy that the central bank announces later this month for the second half of the current fiscal year, a BB official said.

On the decline in inflation from the beginning of this fiscal year, the CPD said international prices for almost all commodities experienced a decline in recent past.

The global prices of most commodities such as oil, soybean oil and sugar have been on a long-term, downward trend since the recession of 2007-2009.

The annual average global price in November 2014 was 3.9 percent lower compared to the corresponding month in 2013, a CPD report said last week, citing the International Monetary Fund data.

Stable exchange rate also helped to keep prices stable, and lower consumer demand in the domestic market arrested the upward pressure on prices, the report said.

Inflation has been under control partly because of favourable international price trends. But the credit also goes to the monetary policy framework which pursued price and external stability, according to Zahid Hussain, lead economist of the World Bank in Dhaka.

The central bank, however, forecasts that an upward pressure on inflation will remain in 2015 because of the new pay scale for government employees, the possibility of oil price hike and the demand pull impact on the price level because of expected 6.5 percent economic growth.

“Bangladesh Bank will keep these issues in mind and design the upcoming monetary policy accordingly so the targeted 6.5 percent inflation becomes achievable,” the BB said on December 30.