Four years of high inflation, and a budget that must answer: When does this end?

For four years, low and middle-income Bangladeshis have been making the same calculation at grocery stores: what to leave behind.

Beef became chicken. Chicken became eggs. Eggs became lentils. And even lentils are no longer cheap.

On Wednesday, the Bangladesh Energy Regulatory Commission made that calculation harder. A nearly 17% hike in consumer-level electricity prices, announced on the eve of the country's first budget under the newly elected government, will feed directly into household costs, transport fares, food processing, and retail prices across the supply chain. For a country already running four years of high inflation, the timing could not be more difficult.

Bangladesh's average annual inflation was 7.70% in 2022, 9.88% in 2023, 9.71% in 2024, and 10.05% in 2025. Nearly halfway through 2026, inflation remains above 9%, even before the latest electricity price increase is absorbed into the economy.

Even more concerning is that wage growth has failed to keep pace. For more than four years, average wages have risen more slowly than prices, meaning many households are effectively poorer today than they were before the inflation surge began.

A World Bank report published last year projected that Bangladesh's poverty rate would rise to 21.2% by the end of 2025, up from 18.7% in 2022, largely due to persistently high inflation. Poverty has increased for four consecutive years, mirroring the country's prolonged inflationary pressures.

Now the electricity hike arrives. Businesses that absorbed rising input costs will pass the additional energy burden to consumers. Traders who already face extortion at every point in the supply chain will have another cost to recover. The inflation that was already refusing to fall is about to receive fresh fuel.

Zahid Hussain, former lead economist at the World Bank's Dhaka office, said higher electricity prices feed directly into the cost of living, with estimates suggesting that a tariff hike of this magnitude could add around 1 percentage point to inflation over the course of a year as its effects ripple through the economy.

Why inflation stayed, why it matters for the budget

Yet Bangladesh's inflation story is no longer simply about global shocks.

The surge began with supply chain disruptions and the Russia-Ukraine war. Fresh geopolitical tensions in the Middle East and uncertainties around the Strait of Hormuz continue to threaten global energy and commodity markets. But global shocks alone cannot explain why inflation has remained stubbornly high – at 9-10% – for more than four years in Bangladesh. Many countries that faced similar pressures have already brought inflation down. Bangladesh remains an outlier.

Economists say the persistence stems from delayed policy responses and structural weaknesses that no budget has yet seriously addressed.

Dr Fahmida Khatun, executive director of the Centre for Policy Dialogue (CPD), argues that policymakers failed to respond adequately during the early phase of the surge. The 9% lending rate cap and 6% deposit rate cap effectively kept money cheap even as inflation accelerated. When inflation was approaching double digits, depositors were earning returns far below inflation, discouraging savings and encouraging borrowing. Real interest rates remained deeply negative.

The Bangladesh Bank eventually raised the policy rate to 10% in 2024. But economists argue the move came much later than necessary.

"Money was made cheaper for influential people when it was supposed to be costlier," said Dr Fahmida.

Structural problems a budget must confront

Beyond delayed monetary tightening, economists point to factors that have made inflation more entrenched in Bangladesh than in peer economies and which the upcoming budget must address head-on.

Weak market governance allows vested interests to profit from price manipulation. Extortion and rent-seeking linked to political influence add to the cost of doing business, pushing up commodity prices. And poor coordination between monetary and fiscal policies undermines every effort to contain prices.

"Market management is very important to curb inflation," said Dr Hossain Zillur Rahman, executive chairman of PPRC and a former adviser to a caretaker government.

He cited public transport fares as an example. Although successive governments have introduced franchise-based bus services, none has brought lasting discipline to the sector. Similar challenges exist in rice milling and other key markets. "This is where Bangladesh differs from many other countries. Market management is the key issue," he said.

Dr Fahmida Khatun echoed the concern, highlighting a fundamental asymmetry. When global commodity prices rise, domestic prices adjust immediately. When international prices fall, however, the benefits are rarely passed on to consumers at the same speed. The effect often spills over to locally produced goods, including vegetables.

She also pointed to extortion as a cost that never disappears. A flower shop owner who paid Tk1,000 per day in extortion under the previous regime now pays Tk3,000. "These costs do not disappear. They are passed on to consumers through higher prices. The extortion charge is effectively built into the prices of flowers," she said.

The finance minister will present a budget in a few days. If it does not contain credible measures against market manipulation – not heavy-handed policing, but visible consequences for manipulators, as Dr Fahmida put it – the structural drivers of Bangladesh's inflation will remain entirely untouched.

What others got right

If Bangladesh needs examples of how inflation can be tamed, the evidence is not hard to find.

Sri Lanka, engulfed in one of the world's worst inflation crises in 2022, with consumer prices surging more than 70%, brought inflation back to single digits within two years. The cure was painful: sharp interest rate hikes, abandonment of an unsustainable exchange rate regime, and fiscal reforms under an IMF programme. The lesson for Bangladesh is not to replicate Sri Lanka wholesale, but to see how quickly inflation retreats when monetary, fiscal and exchange-rate policies all pull in the same direction.

India's experience is perhaps more directly relevant. Facing post-pandemic inflationary pressures, the Reserve Bank of India raised interest rates decisively and held a clear commitment to its inflation target. The government simultaneously managed food supplies – releasing buffer stocks, adjusting export restrictions, and intervening in key commodity markets. Monetary discipline plus supply-side action brought inflation back towards target.

The United States offers the same lesson at a larger scale. After inflation hit a four-decade high of 9.1% in June 2022, the Federal Reserve raised rates from near zero to above 5%. Borrowing costs rose, credit slowed, and activity moderated – but inflation fell without tipping the economy into recession.

In each case, the common thread is coordination: monetary policy, fiscal policy, and market management moving together towards a single objective.

The budget's test

Bangladesh's new finance minister faces an unusual burden on budget day. The electricity hike announced on 3 June has already added to inflationary pressure before a single line of the budget is read. Economists will be looking for three things: whether the budget contains a credible revenue plan rather than optimistic targets; whether it makes meaningful progress on energy subsidy reform without simply passing the full cost onto consumers; and whether it includes any serious mechanism for market oversight that goes beyond press statements.

Until that coordination materialises, millions of Bangladeshis will continue making the same calculation they have made for four years – standing in grocery stores, deciding what food item to leave behind this week. The latest electricity hike means the list of things to leave behind just got longer.