Inflation on rise: What's behind the surge
Experts point to food prices, supply issues, and election spending
Highlights:
- Rising food prices drive most of the increase, experts say
- Housing, gas, and recreation see modest price rises
- January LPG and gas crisis adds to costs
- Election spending fuels higher consumer demand
- Weak market management limits impact of monetary policy
- Experts call for structural reforms, production, and jobs
Bangladesh has been witnessing a noticeable uptick in inflation, prompting questions about its causes and potential policy responses.
Inflation went up for the third month in a row in January, with prices climbing to their highest level in eight months since May last year.
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The overall inflation rate rose to 8.58% in January, up from 8.49% in December, 8.29% in November and 8.17% in September, according to data released by the Bangladesh Bureau of Statistics (BBS) today (8 February).
Experts opined that the surge is primarily driven by rising food prices, structural market inefficiencies, and increased cash flow ahead of elections.
Former World Bank Dhaka Office lead economist Dr Zahid Hussain explained that the recent rise in overall inflation is largely due to food inflation, while non-food prices have remained relatively stable overall.
"Some sub-sectors of the non-food category – including housing, gas, recreation and culture, and miscellaneous items – have seen higher-than-average price increases, contributing modestly to overall inflation," he said.
The economist noted that inflationary pressures are emerging from both supply and demand factors.
"On the supply side, the LPG and gas crisis in January raised costs in other energy-dependent sectors. On the demand side, election-related spending has injected additional cash into the economy, boosting consumer expenditure and further straining prices," he said.
Zahid Hussain added that, with a relatively stable exchange rate and no abnormal rise in government spending, the data suggests Bangladesh Bank's current policy rate should remain unchanged, while continuing efforts to maintain exchange rate stability.
Mustafa K Mujeri, executive director at the Institute for Inclusive Finance and Development (InM), stated that effective anti-inflation measures have yet to yield visible results.
"With elections approaching, cash flow in the economy has increased through government spending, campaign expenses, and remittances," he said, adding, "This has pushed up consumption, particularly for food items, while the supply chain, market management, and product marketing structures have not improved significantly."
Mujeri warned that Ramadan could further exacerbate food price hikes.
He added that while some duties and taxes have been reduced, their impact on prices has been minimal due to weak market management and supply chain inefficiencies.
Farmers often receive prices below production costs, while consumer prices remain high – a structural problem that monetary policy alone cannot solve, said the economist.
"Even with tightened monetary policy and higher interest rates, inflation cannot be fully controlled without reforms in market management, supply chains, import regulation, and competition," Mujeri said.
He opined that the new government will need to focus on market management, boosting production and investment, and creating employment to ease inflationary pressures.
Without these measures, he thinks rising food prices and falling real incomes could further burden ordinary citizens.
