Originally posted in The Business Standard on 22 October 2024
Perishables drive inflation surge as import impact declines
Titled “Inflation Dynamics in Bangladesh, July-September 2024,” the report said the contribution of perishable goods to inflation rose from 18% in the June quarter to 23% in the September quarter, while the impact of import-concentrated items fell from 39% to 26%
The impact of perishable goods on the country’s inflation surged during the first three months of the current fiscal year, while that of the import-concentrated items declined, according to a Bangladesh Bank report.
Titled “Inflation Dynamics in Bangladesh, July-September 2024,” the report said the contribution of perishable goods to inflation rose from 18% in the June quarter to 23% in the September quarter, while the impact of import-concentrated items fell from 39% to 26%.
Economist Fahmida Khatun said the prices of perishable goods have risen due to inadequate preservation, adding, “If these goods perish, they cannot be quickly replaced.”
“For example, many vegetable fields were destroyed by floods in various parts of the country during the September quarter. Consequently, prices have increased due to a supply shortage in the market,” she explained.
A director on the Bangladesh Bank board and executive director of the Centre for Policy Dialogue, Khatun said the impact of imported items on inflation has decreased because of price reductions in the global market.
“In fact, our imports have significantly declined compared to before. Food prices have fallen in the international market, and the import volumes of non-food items have also dropped. As a result, the import-driven impact on inflation is expected to lessen, which is a normal occurrence,” she added.
The central bank report says Bangladesh continued to face persistent inflationary pressures during the first quarter of FY25, with headline inflation reaching 11.7% in July – the highest in 12 years – before moderating to 9.9% in September.
“Food inflation surged, hitting 14.1% in July before decreasing to 10.4% by the end of the quarter. Cereals and vegetables emerged as significant contributors to food inflation during the first quarter of FY25, along with protein-based food items,” reads the report.
In the fourth quarter of FY24, food inflation was primarily driven by protein-based items, spices, and culinary essentials. However, in July-September of FY25, inflation in rice, wheat, and vegetables partially offset the decrease in inflation for protein-based items and spices, resulting in persistently high overall food inflation.
Non-food inflation remained steady, rising slightly to 9.5% in the September quarter from 9.2% in the previous quarter. The impact of energy prices, which had been a major factor in non-food inflation since mid-2022, declined.
According to the report, rental costs for housing began to contribute significantly from August 2024, accounting for approximately 26% of inflation in September 2024. Additionally, health and personal care expenses continued to exert significant inflationary pressure on non-food items, contributing around 17%
In September, the contributions of services and perishable goods to headline inflation stood at 25% and 23%, respectively, compared to 12% and 18% in June 2024. Meanwhile, the contribution of non-perishable goods to headline inflation declined to 52% in September, down from 70% in June.
The impact of import-concentrated items dropped from 39% in June to 26% in September. While this provided some relief, it did not fully offset the rise in food and service prices, according to the report.
The contribution of import-concentrated items to inflation began to increase in August 2022, mainly due to rising international prices. In contrast, the contribution of domestic items to inflation rose to 74% in September 2024, up from 61% in June, added the report.
Additionally, wage growth remained sluggish, with real income continuing to decline as inflation outpaced wage increases since April 2022. However, there was a slight uptick in wage growth in September 2024, particularly in the Dhaka and Rangpur divisions, offering a modest glimmer of hope for improving purchasing power.
Fahmida Khatun said, “To control inflation, we must reduce costs on the fiscal side. The Bangladesh Bank has already tightened monetary policy sufficiently; now we need to assess the impact of this tightening.”
She emphasised that to reduce inflation, it is essential to decrease annual development program (ADP) spending and halt unnecessary projects. Additionally, she noted that the government’s operational costs should be minimized as much as possible.
The economist said, “To rein in inflation, we must accept some slow GDP growth. While rising policy rates are decreasing investment and potentially harming job creation, this hardship is just to bring inflation under control.”
Prices of rice, onion, chili on rise
In the September quarter, most commodities experienced price increases compared to the previous quarter. The price of green chili remained substantially elevated throughout this period.
Additionally, the price of onions surged in July before experiencing a slight decline by the end of the quarter. During this time, the margins for medium rice and onions initially increased before subsequently decreasing.
The margin for green chili surpassed its June peak, then declined, and subsequently increased again. Meanwhile, the margin for farm eggs first declined before stabilizing, while the price of Sonali chicken meat experienced a steady increase from June and remained stable thereafter.
Potatoes, soybean oil, and lentils maintained a steady margin during the first quarter of the current fiscal year.