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Bangladesh has experienced inflationary pressures throughout the year 2023, bleeding consumers dry and putting them under more financial strains as well as influencing the country’s economic landscape.
Policy mismatch between fiscal and monetary measures, including printing of money to ease fiscal pressure, keeping the interest rate low and taka’s value artificially high against the dollar, fluctuation in global oil and energy prices due to the Russia-Ukraine war and forex crunch have fuelled overall inflation.
Besides, syndication has played a crucial role in pushing up the prices of most essential commodities, but the government could not break the syndicate. Commerce Minister Tipu Munshi said that abrupt legal action against businessmen might lead to crises. Some members of parliament came down hard on him, demanding his resignation and alleging his involvement in the syndication.
Prime Minister Sheikh Hasina also replied to the matter saying, "I will see how powerful the syndicates are."
However, the common people did not see a ray of hope whenever they went to the market to buy essentials such as potatoes, onion, eggs, sugar, rice, lentils, flour, meat etc. The prices of these commodities sometimes soared overnight.
However, the government in the second half of the calendar year has taken some monetary policies, including stopping printing money, lifting the interest cap, and increasing the policy rate to reduce money supply and combat rising inflation.
While commenting on the matter, Consumers Association of Bangladesh (CAB) President Ghulam Rahman said, “Pulling the reins of syndication depends on the decision of the government’s policymakers. Syndicate is not more powerful than the government.”
“If the government takes timely and right policy measures, including market-based interest and exchange policy, stopping the printing of money to ease fiscal pressures, and proper utilisation of government’s spending, inflation will come down gradually.”
He also said, “The government relaxed the interest rate earlier as per the six-month moving average rate of treasury bills (SMART), replacing the 9-6 cap regime, but this is not yet a market-based system.”
In FY23, the government took a direct loan of around Tk 1 lakh crore from the central bank and the move had drawn widespread criticism as such printed or high-powered money was entering the market, which in turn led to an increase in the overall money flow at least five times. As a result, this money has further fuelled inflation in the country.
Inflation trend
Though the country did not see any tangible positive impact on the commodity market in 2023, leaving the public to fight tooth and nail with shrinking wages and skyrocketing prices, the government’s inflation rate showed a lesser extent of actual reflection in the market.
After analysing the data on the prices of daily commodities revealed by the Trading Corporation of Bangladesh (TCB), the country’s economists sometimes comment that the inflation rate is 20 per cent higher when compared to the same period last year.
However, the Bangladesh Bureau of Statistics (BBS) data shows that the inflation rate is between 8.57 per cent and 9.94 per cent point, keeping the inflation rate at single digits.
“The government puts the average inflation rate at 9 per cent,” Centre for Policy Dialogue (CPD) executive director Fahmida Khatun said at an event.
“We monitor the TCB item-wise rates and see some items show 20 per cent inflation, some 30 per cent, some 40 per cent, some even 50 per cent. And these are government figures. So, it is felt that inflation may be at least 20 per cent in actual terms,” she said.
According to BBS, the highest general point-to-point inflation rate was 9.94 per cent in May, an 11-year high.
The country had witnessed an upward trend in point-to-point inflation since the beginning of 2023, hitting 8.57 per cent in January, 8.78 per cent in February, and 9.33 per cent in March. Though it edged down to 9.24 per cent in April, inflation hit a record high of 9.94 per cent next month.
Later, the inflation rate slipped to 9.74 per cent in June, followed by 9.69 per cent in July. However, it again soared to 9.92 per cent in August. The inflation rate then dipped to 9.63 per cent in September but it reached 9.93 per cent in October. The rate was the second highest in 2023.
Bangladesh’s inflation eased to a seven-month low of 9.49 per cent in November.
Comparison with neighbouring countries
An analysis of the inflation data for the January-November period of 2023 showed that among four South Asian nations, Sri Lanka performed the best in containing high inflation, followed by a stellar performance by Pakistan.
Bangladesh and India, however, did not improve much in terms of cutting living costs.
In January, Sri Lanka’s point-to-point inflation rate was 53.2 per cent, which was even the sixth highest in the world. Later in July, the country brought down the inflation rate to 2.8 per cent, which was a remarkable feat. Sri Lanka also saw 1 per cent inflation in October and 0.8 per cent in September.
Many across the globe expressed a pleasant surprise that Sri Lanka was able to showcase such an improvement after announcing a failure to repay international loan instalments. The island nation has also begun repaying its loans.
Pakistan, a South Asian country embroiled in political chaos, has been suffering from high inflationary pressure due to a shortage of USD.
From January to May this year, the country’s inflation rate rose gradually. In May, this rate was 38 per cent, which was the highest that year. But later, it fell below 30 per cent interest rate each month till November except in September.
In November, the country recorded 29.2 per cent general inflation.
Among the South Asian nations, India is in a complicated situation in terms of inflation. From January to June this year, the country’s point-to-point inflation declined gradually, reaching 4.87 per cent in June.
But after that month, inflation witnessed a resurgence in July, hitting 7.44 per cent – which was much higher than usual. But later, it slipped to around 5 per cent in the next months until November, hitting a 5.55 per cent inflation rate.
According to economists and stakeholders, Bangladesh suffers from mismanagement of the market system, rampant syndication, lack of market monitoring, lax implementation of laws, and consumer behaviour.
Talking to The Business Post, former lead economist of the World Bank Dhaka office Zahid Hussain said, “Sri Lanka acknowledged its problems and took quick and effective measures to resolve them.”
“There was a rampant denial of our problems. That is why we are not doing as well as Sri Lanka in terms of battling inflation.”
“For example, they lifted the import ban on fertilisers, increased interest rates, and market-based exchange rate. Apart from this, the country’s USD income is also increasing due to an uptick in tourism after the Covid-19 crisis.”
He added, “It was easy to make such difficult decisions as Sri Lanka was standing on the edge of a cliff, and the country’s central bank acknowledged the actual situation and implemented effective policies on time.”
He said, “Pakistan cannot be an example for us, but Sri Lanka can be. Rather than curbing inflation, we resorted to different policies, such as borrowing money directly from the central bank.”
“Prices of essential commodities should have dropped domestically in tune with the international prices. Besides, due to import restrictions, many products cannot be imported at low prices. As a result, any price reduction in the international market makes no impact on our domestic market,” he said.
