Watch out for supply crunch too

Aggregate demand has been rising in the country for several years due to the rise of the middle class. The economy had shown recovery signs recently though the demand for consumer goods declined owing to the pandemic-led income crunch.

Then came the Russia-Ukraine war, delivering shock to the international fuel and food market, which has affected our domestic market too, dealing a fresh blow to the poor, low and middle-income people.

Many middle-income people might not be able to buy goods as they used to. And our domestic demand might have to endure the overall negative effect.

But it is positive so far that rice prices have not increased much, and the country also has ample food stocks. Our Boro season is also ahead.

It is true the country's economy has grown well over the last two decades, but not everyone is reaping the benefits equally. This has resulted in a rich and ultra-rich class who may not be in significant trouble from the commodity price surge.

But it may not be possible to sustain the domestic demand if the poorer sections face decay in purchasing power. While large industrial groups are able to avert the crisis, companies that produce goods and services for the poor may be under pressure as demand falls.

I think the supply-side crisis will affect the economy in the future. It prompted the current spiking inflation.

If fuel and petroleum become pricier, there is a concern over commodity price hikes. Unscrupulous traders also rush for hoarding to make a quick buck.

The government must strengthen market monitoring to provide consumers with some respites. Supply chain issues, if any, should be addressed promptly. It must be ensured that the price of an item does not multiply just after changing a few hands.

Monetary policy also requires special care. Private sector credit should not be limited to large industries; it should be extended to small and medium enterprises.

The SME sector is the largest employer in the country; the sector also manufactures more goods and services for the poor. Both employment and income of the poor will decline if the SME sector suffers. Besides, commodity prices will also go up.

The monetary policy should not be too accommodative. Credit flow to unproductive sectors such as consumer loans, car loans and any purpose loans needs to be reduced.

Besides, social safety programmes such as cash assistance, food aid and subsidised goods should be ramped up as part of fiscal measures to maintain the purchasing power of the poor.

[Salehuddin Ahmed talked to The Business Standard Senior Reporter Jahidul Islam over the phone Thursday]