Raging inflation thwarting growth

The ongoing raging inflation has raised significant concern among the government and the general public. For the last couple of years, Bangladesh’s economy has been in deep trouble. Some segments of the phenomenon are linked to the international economic slowdown while others emanate from mistakes inside the country, as has already been indicated by the renowned and leading economists of the country.

Economists define inflation as the rise in the general price level of goods and services over a particular period.

Several factors have contributed to inflation in this. The country has been facing a balance of payments crisis, leading to a devaluation of the taka. As a result, the prices of imported goods have increased, leading to an increase in the general price level. As is well known the country is heavily reliant on oil imports, and the rise in oil prices has also contributed to inflation.

In particular, the prices of vegetables, meat, and other food items have seen significant increases in recent months, with several factors contributing to the rise. These include a weaker taka, supply chain disruptions caused by pandemic-related restrictions, and higher production costs for farmers.

Bangladesh has endured persistent inflationary pressure for years, which has had substantial ramifications on various aspects of the economy, including jobs, living standards, and social unrest. Alarmingly, the ever-increasing inflation points to a much deeper malaise. Inflationary pressure is starting to impact the country’s economic growth. Though Bangladesh is still one of the fastest-growing economies in the region, inflation may well change the situation for the worse.

According to a report published in this newspaper on Monday the IMF team which ended its visit to Bangladesh on May 7 identified inflation as one of the key factors impacting Bangladesh’s growth and foreign currency reserves.

Inflation is a matter of serious concern accentuated by the unprecedented appreciation of the United States dollar. The domestic price level, i.e., the Consumer Price Index [CPI], is highly susceptible to inflationary syndrome through the exchange rate channel. The import-dependent nature of many essentials such as fuel, edible oil, food, wheat, sugar, intermediate goods, and raw materials continues to witness higher prices in Bangladesh.

We have to remember that inflation is not simply a rise in some prices, which merely results in a change in the relative prices of goods and services. Inflation is a general rise in prices that results in a decline in purchasing power of money. It is not only a loss of real value in the domestic medium of exchange but also a unit of account. Under such circumstances it is well known that one group will always pay the price for inflation or bear the burden of increasing costs: working people i.e., wage earners.

The results of inflation ultimately fall on the shoulders of the common people. The lives of people have already turned into a veritable hell because of steep price hikes for essential items. Their backs are against the wall.

On a related note, inflation has increased the profit margin of some unscrupulous businesspeople. The price hike of commodities put the consumers under more pressure, making a dent in their savings but increasing the profit margin of the businesspeople. The revenue board is yet to collect more revenues from the profit margin.