Published in The Daily Star on Wednesday, 4 February 2015.
Turmoil fuels food inflation
Rejaul Karim Byron
Food inflation crept up 0.21 percentage points last month, bucking the trend of the past seven months, as supply disruption caused by political turmoil from January 6 inflated prices.
In January, food inflation stood at 6.07 percent against 5.86 percent the previous month, according to Bangladesh Bureau of Statistics.
The food inflation increased slightly due to the dislocation caused by the political unrest, Planning Minister AHM Mustafa Kamal said yesterday while releasing January’s inflation data.
The increase in food inflation reflects the impact of supply chain disruption and significantly increased costs of transportation, Zahid Hussain, lead economist of the World Bank’s Dhaka office, said.
The wastage at the farm level as a result of the transportation disruption also accounts for the rise in food price level, Mustafizur Rahman, executive director of Centre for Policy Dialogue, a private think-tank, said.
Particularly worrying is the rising price of staple rice, which is a big contributor to the food index. The price has already increased by Tk 1-2, as the main rice growing region, which is the country’s northern parts, carries the stigma of greater political violence.
The rising food inflation though was negated by the sliding non-food inflation to take the overall inflation to its lowest level in 26 months.
Inflation stood at 6.04 percent in January against 6.11 percent the previous month.
Non-food inflation dropped to 6.01 percent last month, after rising for three consecutive months. In December last year, it stood at 6.48 percent.
Kamal said the reason for the drop in non-food inflation was that most of the items that constitute as non-food are import-based, such as capital machinery, industrial raw materials and intermediary goods.
Their prices fell in the international market and so they did in the local market as well.
The planning minister went to cite the oil price, which was $147 per barrel few weeks back but dropped to $45 of late, to further his point.
But experts say both the rise in food inflation and fall in non-food inflation are consequences of the political unrest.
The decrease in non-food inflation may be a reflection of weak demand for non-food items because of the deepening political uncertainty and the adverse shock it has had on income and employment, particularly in rural areas, Hussain said.
Rahman said the reason for the drop in non-food inflation is the stagnation in demand from consumers, particularly as the incomes of non-fixed earners have decreased since the onset of turmoil, which is now the longest since 1996.
About the overall inflation, Hussain said it appears to be on track to achieving the 6.5 percent target set out in the Monetary Policy Statement for the second half of the fiscal year.
However, it could be de-railed if the political unrest drags on, added the WB economist.
Rahman echoed the same. “Now, only the supply chain has been hit, but if the unrest prolongs, the production network will also suffer.”