Inflation falls to three-year low at 8.29% in August
Despite easing inflation, wage growth for low-paid skilled and unskilled workers slowed to 8.15% in August, extending a 43-month stretch in which wages have failed to keep pace with rising prices.
Inflation in Bangladesh eased in August to its lowest level in more than three years (37 months), helped by tight monetary and fiscal policies.
According to data released by the Bangladesh Bureau of Statistics (BBS) today (7 September), overall overall inflation eased to 8.29% year-on-year in August, down from 8.55% in July.
This marks the smallest point-to-point increase since August 2022.
The last time inflation stood lower was in July 2022 when it was recorded at 7.48%. Since then, inflation has consistently remained above 8%, straining household budgets.
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In comparison to this year, the general inflation rate stood at 10.49% in August 2024 and 9.52% in August 2022, as per the BBS data.
Inflation in both rural and urban areas also recorded slight decreases during the same period.
According to BBS officials, the recent decline in overall inflation was largely driven by easing non-food inflation.
Economists credit contractionary policies in place. They said the combined effect of the government's contractionary monetary policy and fiscal policy has significantly reduced inflation over the past year.
Fahmida Khatun, executive director at the Centre for Policy Dialogue (CPD), said, "Two policies play a vital role in controlling inflation. One is contractionary monetary policy. When the central bank raises the policy rate, lending rates go up, which reduces money supply in the market and discourages people from taking loans.
"The other is contractionary fiscal policy, which involves cutting unnecessary public expenditure and focusing only on essential projects. When both policies work in coordination, inflation can be effectively controlled."
She added that the current government's approach of combining tighter monetary and fiscal measures has begun to ease inflationary pressures from both the demand and supply sides.
The central bank has set a target of keeping inflation within 6.5% in FY26.
Former World Bank lead economist Zahid Hussain said overall inflation fell in August, but food inflation edged up, driven by rural areas. "Food inflation rose slightly, mainly because of higher prices in rural areas. In cities, food inflation is declining, while non-food inflation is falling in both rural and urban areas," he said.
Zahid explained, "In August, the government bought paddy, rice, and later parboiled rice. This was a historic record – more was bought than the initial target. A total of 376,000 tonnes of paddy was purchased, and all of it came from rural areas, not from cities."
"The rice was bought and stored in warehouses for food security reserves and to ensure fair prices for farmers, but since the stock was not released back to the market, consumer-level prices rose. The impact was strongest in rural areas, pushing up national food inflation," he added.
He also noted that weak credit growth and exchange rate stability also helped bring down overall inflation, particularly in non-food sectors. "Excluding education, inflation fell in almost all non-food categories. Credit growth hit a low in August, restraining demand and helping to ease non-food inflation. Meanwhile, the stable exchange rate prevented extra pressure on inflation."
Masrur Reaz, chairman of Policy Exchange Bangladesh, also credited contractionary monetary policy and stable foreign exchange rates for the decline. "The fall in non-food inflation in August is encouraging. It reflects both the effectiveness of monetary policy and improved supply management," he said.
However, he warned of three major challenges to keeping inflation under control: maintaining a tight monetary stance, ensuring stability in the balance of payments and foreign reserves, and addressing manipulation in domestic supply chains.
"Supply chain manipulation is a major weakness and a serious obstacle to long-term inflation control," he said.
Inflation trends in urban vs rural areas
BBS Director General Mohammed Mizanur Rahman said inflation fell mainly due to a drop in non-food prices, though food inflation rose.
He further noted that inflation data is still collected manually but efforts are underway to digitise the process, which would make future reporting more timely and accurate.
BBS data shows that rural inflation eased to 8.39% in August, down from 8.55% in July and 10.95% a year earlier. Rural food inflation, however, increased to 7.50% from 7.36% in July, though still well below the 11.44% recorded in August 2024. Non-food inflation in rural areas fell to 9.28% from 9.73%.
In urban areas, inflation dropped to 8.24% in August from 8.95% in July, compared to 10.01% in August 2024. Urban food inflation edged down to 7.87% from 8.04%, while non-food inflation fell sharply to 8.49% from 9.55%.
In August last year, non-food inflation in cities was 9.20%.
Wages still lag
Despite easing inflation, wage growth for low-paid skilled and unskilled workers slowed to 8.15% in August, extending a 43-month stretch in which wages have failed to keep pace with rising prices.
On this, Zahid Hussain said real wages are an important indicator in analysing the current inflation situation.
"Nominal wage growth (8.15%) is still behind the inflation rate (8.29%). This means real wages are still falling, although the pace of decline has slowed," he explained.
He noted that in the services sector, real wage growth turned positive this month. However, in agriculture and industry, the two largest sectors, real wage growth remains negative.
"This situation indicates that the labour market as a whole is still weak. Demand for labour is not keeping pace with supply, which may be due to underutilisation of production capacity, the energy crisis, and a lack of investment," he added.
