Originally posted in The Business Standard on 8 August 2023
Despite global drop, why is inflation still high in Bangladesh?
Even though inflation is continuing to fall all over the world, in Bangladesh, inflation seems to be hovering at 10% over the last six months.
For example, in the US, inflation declined from 8.5% in July of the previous year to 4.6% this July. Similarly, in the European Union, inflation dropped to 5.3% in July of this year, a significant decrease from nearly 9% a year ago. However, in contrast, Bangladesh experienced a surge in inflation by more than two percentage points, rising from 7.4% in July of the previous year.
Low and middle-income individuals are struggling with the persistently high prices of essential commodities such as fish, meat, eggs, and sugar in Bangladesh. The Business Standard spoke to three noted economists to find out the reasons behind this stubborn inflation and find a way out of this situation.
‘Market management is to blame’
Our point-to-point inflation is still more than 9% — a major headache for people with limited income — but it is coming down in other countries. So, why are we not seeing the reflection of the global market scenario?
This, in my opinion, is an issue of market management. Inflation is related to issues like how much is our demand, how much is our supply, what are we importing, when are we importing and at what price are we importing. It is also connected with the price hike of gas and electricity. The other local reason is depreciation of taka, which is happening continuously.
We need to focus on market management, we should carefully monitor supply and demand, be on the lookout for market indications, and our Directorate of National Consumer Rights Protection and competition commission needs to be more active. Secondly, the scope of open market sales by Trading Corporation of Bangladesh (TCB) needs to be broadened. And the family card operation aimed at people with fixed and limited incomes needs to be strengthened.
I believe this will help bring high inflation down. Inflation has dropped in the international market and many countries are already seeing its impact, but it has yet to be reflected in the local market. Since taka has already depreciated and is reaching market rate and global inflation has gone down, I think inflation will decrease here as well.
But even if the rate comes down from 9% to 6%, the base is already very high. Tk100 becomes Tk110 with 10% inflation, now with 6% inflation it will still be Tk116, so the base effect is important. People’s purchasing power will still erode and we will still need a robust social safety net.