Why Bangladesh's inflation refused to fall under the interim government

Dhaka's wet markets are quieter now. Vendors still call out prices, but shoppers pause longer, calculate harder, and walk away with lighter bags. Half a kilo instead of one. One item replaces three. The noise has faded, but anxiety has not. The interim government came with promises of relief, and now, as its tenure nears its end, the weight of daily expenses feels largely unchanged.

When the interim government took charge, expectations were high. Strong monitoring, tighter discipline, and decisive policy; many believed these would finally bring relief to the kitchen market. A year and a half later, that hope has thinned. Prices have not come down. Inflation has not been tamed. Instead, it has settled into a kind of uneasy permanence.

Official data confirm what households already feel. According to the Bangladesh Bureau of Statistics, point-to-point inflation rose again to 8.49 percent in December 2025, up from 8.29 percent in November.

Inflation has now remained above 8 percent for 41 consecutive months. Food inflation climbed to 7.71 percent in December, which is the highest in seven months, while non-food inflation reached 9.13 percent.

Wages, meanwhile, have failed to keep pace. In December, nominal wage growth stood at 8.07 percent. For the 47th straight month, wage growth lagged behind inflation. In real terms, incomes are shrinking. This gap explains why markets feel subdued: people are not spending less by choice, but by necessity.

So why did the interim government fail to bring prices under control despite repeated policy announcements, market drives, and tight monetary measures?

The answer lies less in demand and more in supply. Bangladesh's current inflation is not primarily driven by excess consumption. It is rooted in supply-side constraints and deep structural weaknesses.

The central bank has kept the policy rate at around 10 percent for over a year, but inflation has barely responded.

As economists point out, monetary tightening can cool demand, but it cannot fix broken supply chains.

Import bottlenecks have been central to the problem. Letters of credit have become harder to open and slower to settle.

In 2025, LC settlements declined by around 10 percent, while new LC openings fell by more than 4 percent.

Faced with dollar uncertainty, banking liquidity stress, and shifting import rules, traders have grown risk-averse. Fewer imports mean fewer goods entering the market—and scarcity hands pricing power to a small group of large importers and wholesalers.

At the retail level, competition weakens. When supply thins, monitoring teams and price lists lose effectiveness. Prices stop responding to enforcement and start responding only to availability.

Government efforts — market surveillance, expanded Trading Corporation of Bangladesh (TCB) sales, warnings to traders — have struggled to make a visible dent because the underlying flow of goods has not improved.

International prices have offered little relief either. Even when global commodity prices declined, domestic consumers did not benefit. High transport costs, weak logistics, middlemen margins, extortion, and inefficient distribution absorbed the gains. Businesses, anticipating future cost increases, held prices steady instead of passing savings on. This behavioural pricing has kept non-food inflation stubbornly high.

The most telling weakness, however, lies within domestic supply itself; after harvest, but before markets.

Bangladesh produces enough food on paper. In reality, a significant share never reaches consumers.

According to the Centre for Policy Dialogue (CPD), post-harvest losses amount to nearly 21 million tonnes of food every year. This is not a marginal inefficiency; it is a structural failure.

Data from the Food and Agriculture Organization (FAO) reveal the scale of loss: around 17.8 percent of paddy and 17.6 percent of wheat are lost after harvest. For fruits and vegetables, losses range from 17 percent to as high as 32 percent, with mango losses alone reaching 31.7 percent. Fisheries suffer average losses of 12.5 percent due to poor icing and handling. Losses stand at about 8 percent for milk, 13 percent for eggs, and nearly 17 percent for poultry.

The World Food Programme (WFP) estimates that 25–40 percent of fruits and vegetables, worth roughly $2.4 billion annually, rot before reaching consumers because of inadequate storage and cold-chain facilities. Between 8 and 15 percent of rice and almost 30 percent of fish are also wasted post-harvest.

These losses quietly create artificial scarcity. Food exists, but not where it is needed. Supply shrinks on the market floor, prices rise, and consumers pay for inefficiencies they cannot see. Cold storage gaps, outdated warehouses, weak rural roads, and fragmented collection systems have turned post-harvest loss into a permanent inflationary force.

The interim government acknowledged these issues, but time and institutional limits worked against it. Building cold chains, modern storage, and fair market systems requires long-term investment and coordination—far beyond the reach of short-term administrative measures.

Policy inconsistency compounded the problem. While monetary policy remained tight, fiscal signals were often unclear.

Investors and producers struggled to predict the policy environment. As private credit growth slowed, investment stalled.

In the industry, delays in importing raw materials and machinery reduced output. As Policy Exchange economists have warned, suppressing demand without restoring production creates a trap: lower demand aims to curb inflation, but reduced output tightens supply and pushes prices back up.

This is the paradox now facing Bangladesh. Demand is weak, production is constrained, supply is thin; yet prices refuse to fall. Businesses price in future uncertainty. Consumers absorb the shock daily.

The interim government did nothing. But it faced a crisis rooted far deeper than market raids or interest-rate adjustments could reach. LC bottlenecks, dollar shortages, banking stress, weak regulation, post-harvest losses, and infrastructure gaps converged at once.

That convergence explains the quiet markets of Dhaka today. People are buying less, eating less, adjusting expectations downward. The calm is deceptive; it reflects endurance, not relief.

Economists agree on what comes next. Sustainable price stability will not come from short-term controls. It requires restoring competition, fixing supply chains, investing in storage and logistics, enforcing policy consistently, and shifting from an import-dependent system to a production-driven and efficiency-driven economy.

Until those foundations are repaired, inflation in Bangladesh will remain more than a statistic. It will continue to be felt every evening, in every market, in the weight or absence of what families carry home.

Marzia Zahan Momo is a Mass Communication & Journalism student at the University of Dhaka.

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.