Inflation edges up to 8.36% in September

Point-to-point inflation in Bangladesh inched up to 8.36% in September, from 8.29% in August, according to data released by the Bangladesh Bureau of Statistics (BBS) on Monday (6 October).

The rate was 9.92% during the same month last year. Inflation has lingered above 8% for over three years since August 2022.

BBS data shows that both food inflation and non-food inflation increased in September. Food inflation in September was recorded at 7.64%, up from 7.60% in August, while non-food inflation stood at 8.98% in September, a marginal increase from 8.90% the previous month.

A year earlier, in September 2024, food inflation was recorded at 10.40%, and non-food inflation was 9.50%.

Zahid Hussain, former lead economist at the World Bank's Dhaka office, said inflation in Bangladesh currently appears rigid – neither falling consistently nor rising sharply. Month-to-month changes have been minimal, giving the sense that prices are trapped within a certain range.

He added that this should have been a warning for the Bangladesh Bank, and it could have acted more proactively, especially in exchange rate management.

"Currently, the Bangladesh Bank is regularly buying dollars, which has two effects. First, if the exchange rate or dollar price had been allowed to fall slightly, it would have had a direct positive impact on import prices and production costs. But by keeping the dollar around Tk 122.80, that opportunity was lost," he said.

"Second, rising government spending and excess money supply in the economy have increased inflationary pressure in the market. As a result, risk-free interest rates are falling, which weakens the impact of contractionary monetary policy. In other words, while the Bangladesh Bank is maintaining strict policies, their effect is not fully realised in the market; instead, it is putting more pressure on the demand side, which further pushes inflation upward," he added.

Zahid further said that opportunities to curb inflation could have come from two avenues: maintaining a stricter contractionary policy or allowing some appreciation of the exchange rate. Past experience shows that exchange rate fluctuations are a major source of inflation in Bangladesh. While taka appreciation wouldn't guarantee lower prices across the board, it could have created a more favourable environment.

From the Bangladesh Bank's perspective, both options carry risks. Halting dollar purchases to let the rate depreciate could hurt exports and remittances, straining reserves. Continuing dollar purchases increases inflation risk but prioritises reserve buildup. The bank has chosen the latter, and the consequences are evident: inflation remains above 8%, whereas it was expected to gradually fall below 6%, said the economist.

With gross reserves now over $26 billion, Zahid Hussain said it is time for the Bangladesh Bank to reconsider its policy priorities – whether to focus on reserve accumulation or place greater emphasis on controlling inflation.

Rural, urban inflation tick up; wages lag behind

According to BBS data, rural inflation rose to 8.47% in September, up from 8.39% in the previous month. In September 2024, rural inflation was 10.15%.

In rural areas, food inflation increased to 7.54% in September from 7.50% in August. Non-food inflation also rose from 9.28% in August to 9.40% in September.

In urban areas, overall inflation in September was 8.28%, slightly higher than 8.24% in August. Food inflation in cities rose from 7.87% in August to 7.94% in September, while non-food inflation edged up from 8.49% to 8.51%.

Meanwhile, according to BBS, the general wage growth rate fell to 8.02% in September, down from 8.15% in August. In September last year, the wage growth rate was 8.01%, marking a 44-month streak in which wages had lagged behind inflation.