January inflation hits 8-month high – polls spending seen as a key driver

Infographic: TBS

Inflation rose for the third consecutive month in January, climbing to its highest level in eight months, with increased cash flows linked to election-related spending seen as a major factor behind the rise.

The overall inflation rate stood at 8.58% in January 2026, up from 8.49% in December 2025, 8.29% in November and 8.17% in September, according to data released by the Bangladesh Bureau of Statistics (BBS) today (8 February).

The last time inflation was higher was in May last year, when it was slightly above 9%.

Although overall inflation eased compared with 9.94% in January last year, the latest increase has raised concerns about renewed pressure on household budgets ahead of Ramadan.

According to economists, the upcoming national election has increased the flow of money in the economy, pushing up consumption and prices, particularly for food items.

Mustafa K Mujeri, executive director of the Institute for Inclusive Finance and Development (InM), said election-related cash flows were playing a key role in driving inflation.

"Government election-related spending, campaign expenditure by candidates and inflows of remittances have together raised demand in the market," he told The Business Standard. "When liquidity increases, consumption naturally rises, particularly for food items."

However, as there has been little improvement in the supply chain, market management, and product distribution networks, upward pressure on inflation continues, he added.

"Moreover, in the current economic context, the impact of effective measures to reduce inflation is not yet visible," Mujeri said.

Mujeri further noted that despite some reductions in duties and taxes on selected items, the impact has not been clearly reflected in market prices.

"Instead, prices have increased in many cases due to poor market management and inefficiencies in the supply chain. Farmers often do not receive fair prices, while consumers pay relatively more. Without addressing these structural issues, food inflation will remain difficult to control," he said.

Mujeri also warned that food prices could rise further during Ramadan.

Limits of monetary tightening

Mujeri said although the government has tightened monetary policy and raised policy interest rates to curb inflation, the results have been limited. "Increasing interest rates alone has not been enough to bring inflation under control."

"Without parallel structural reforms such as improving market management, strengthening the supply chain, managing imports, and ensuring a competitive market, the impact of monetary policy remains limited," he added.

He said the next government would need to prioritise stronger market oversight, supply chain improvements, higher production and investment, and job creation to bring inflation under control.

"Otherwise, rising food prices and falling real incomes could make life even harder for ordinary people," he warned.

Dr Zahid Hussain, former lead economist at the World Bank's Dhaka office, also cited similar reasons for the spike in inflation. He noted that increased election spending on the demand side had injected extra liquidity into the economy, raising consumption and price pressure.

However, he said inflation is being driven by pressure from both the supply and demand sides. On the supply side, the LPG and gas crisis seen in January pushed up costs in other energy-dependent sectors as well. 

"The main reason behind the increase in general inflation is food inflation," he said. "But, non-food inflation has not risen significantly overall."

He added that the trend was similar in both rural and urban areas, although certain non-food sub-sectors – such as housing, gas, recreation and culture, and particularly the miscellaneous category – showed relatively higher inflation, adding to overall price pressure.

Zahid further said, from a monetary policy perspective, current data suggest the conditions are not yet in place to cut the policy rate. 
As there is still no clear downward trend in inflation, he said it may be a reasonable step for Bangladesh Bank to keep the policy rate unchanged while continuing its policy of maintaining exchange rate stability.

Food inflation drives overall increase

According to the latest BBS statistics, food inflation rose to 8.29% in January 2026, compared with 7.71% in December 2025 and 10.72% in January 2025. Non-food inflation stood at 8.81%, slightly down from 9.13% in December 2025 and 9.32% a year earlier.

At the rural level, inflation rose to 8.63% in January, up from 8.48% in December, though it was significantly lower than 10.18% in January last year. Rural food inflation stood at 8.18%, while non-food inflation declined to 9.04%.

In urban areas, inflation reached 8.57%, marginally higher than 8.55% in December, but lower than 9.89% in January 2025. Urban food inflation rose to 8.61%, while non-food inflation fell to 8.54%.

Wages lag behind prices

BBS data also showed that general wage growth stood at 8.08% in January 2026, marginally higher than 8.07% in December. This marked the 48th consecutive month in which wage growth failed to keep pace with inflation.

Sector-wise, wage growth was recorded at 8.12% in agriculture, 7.98% in industry and 8.24% in the services sector.

Commenting on wages, Mustafa K Mujeri said prolonged gaps between inflation and wage growth were eroding real incomes for working people.

"When job creation and investment remain weak, demand for labour does not increase, keeping wage growth limited," he said. "As a result, low- and fixed-income groups are finding it increasingly difficult to cope with rising living costs, and their purchasing power is falling."