Published in The Financial Express on Sunday, 22 December 2013.
BB sees a number of risks in attaining 7pc inflation target
The central bank’s notes of risks came at its July-September report, issued last Thursday.
It said wage increases in both the private and public sectors stemming from the increase in garment workers’ wages and the decision to set up a public sector wage board will create aggregate demand pressures on the economy.
The recent rise in Indian inflation could also be transmitted to Bangladesh as shown by historical long term trends, Bangladesh Bank said.
Economists, meanwhile, said inflation figures are set to remain stubbornly high in the country in December and onwards mainly due to supply disruption of essential goods.
The 12-month average consumer price index (CPI) inflation using 2005-06 as base year fell from the beginning of fiscal year (FY) 2013 and bottomed out at 6.06 per cent in January 2013.
The inflation started to go up and reached 7.37 per cent at the end of the first quarter of FY14, remaining above national budget targeted 7.0 per cent for FY14, the report said.
Economists said urban areas will face acute inflationary pressures especially, in context of food inflation, than rural areas due to supply chain disruption.
Policy Research Institute of Bangladesh (PRI) executive director Ahsan H Mansur said food inflation might go up and the main reason is the supply chain disruption caused by restive shutdowns and blockades.
“The real income of the urban people is eroding fast due to the inflationary pressures,” Mr Mansur said.
However the BB report did not say anything whether it will take any measures in taming the inflationary pressures.
Bangladesh Bank prepares monetary policy and tries to battle surging inflation through its different tools like benchmark repo rate, cash reserve ratios and others.
Sources at the Bangladesh Bureau of Statistics that prepares the monthly CPI and inflation said food inflation has been rising mainly due to rise in prices of rice, the main inflation driver in the food basket.
Prices of rice have soared in the city’s wholesale market mainly due to the supply disruption.
Rice supply mainly comes from the northern districts but movement of lorries and trucks, to and from Dhaka, came to almost halt due to shutdowns and blockades.
If any truck or lorry driver agrees to ply amidst the risk, it wants exorbitantly higher rents leading to rise in prices of goods.
Another economist at the Centre for Policy Dialogue (CPD), Dr Khandker Moazzem said wage hikes for the garment workers or others will not help raise inflation at this moment.
Dr Moazzem said rise in inflation in the India will also not affect the CPI inflation in Bangladesh.
“India has decided to export onions to Bangladesh and it will help lower the prices in the domestic market,” Dr Moazzem, an additional director at the CPD said.
He also said global context, food price declined during the first quarter of FY’14 due to good global supply prospects.
In India, point-to-point CPI inflation moved up to 9.84 per cent in September 2013 from 9.31 per cent in May 2013.
Similarly, Indian headline inflation – a type of inflation mostly of the food basket – rose to 6.46 per cent in September 2013 after bottoming out at 4.58 per cent in May 2013.
In Pakistan, point-to-point CPI inflation edged up to 7.4 per cent in September 2013 from 5.9 per cent at the end of June 2013.
In Sri Lanka, inflation decreased slightly to 6.2 per cent in September 2013 from 6.8 per cent in June 2013