Bangladesh sees 2nd highest inflation among neighbouring countries

Bangladesh has witnessed the second highest point-to-point inflation after Pakistan among its neighbouring countries, including India, Thailand, Vietnam and Indonesia, according to the latest statistics of their respective central banks.

The Bangladesh Bank released the data in a “cross-country comparison of point-to-point inflation” chart in the monetary policy statement (MPS) which was unveiled for the first half of the fiscal year 2024 on Sunday.

Pakistan witnessed 38 per cent inflation, followed by Bangladesh 9.9 per cent, Indonesia 4 per cent, Vietnam 3.1 per cent and Thailand 0.1 per cent in May. India had inflation of 4.7 per cent in April.

The MPS said, “The elevated level of inflation across the globe has declined due to the easing of supply side conditions, and lower food and energy prices. The adjustments have not been reflected equally in Bangladesh’s economy mainly due to the domestic price rigidity, lack of adequate market competition and large depreciation of domestic currency, offsetting the potential benefits of lower global prices.”

“CPI-based inflation in Bangladesh has been rising, especially after subsequently upward adjustment of fuel and energy prices during the first quarter of FY23,” it added.

The central bank unveiled the monetary policy statement at a time when the economy faces tremendous pressure due to persisting foreign exchange crisis and skyrocketing inflation and people from every sector of the country are struggling to survive amid the economic headwinds.

The inflation hit an 11-year high of 9.94 per cent this May, the data from the Bangladesh Bureau of Statistics (BBS) showed. Many, however, argue that the actual inflation is higher than the official figure.

In the upcoming fiscal year, the government target is to keep the inflation rate at 6 per cent.

“To minimise exchange rate pressure, which in turn will ease the inflationary pressure, BB has continued its import-limiting policies for luxurious and non-essential commodities,” the MPS stated.

“Moreover, BB has increased monitoring to prevent over and under-invoicing, along with implementing other measures to reduce exchange rate pressure.”

“These efforts collectively aim to help control inflationary pressure and maintain price stability within the economy. Recognising the importance of maintaining inflation within acceptable levels, the current MPS will bolster the implementation of the following policy measures,” it added.

It also said that the monetary policy stance for H2FY23 was initially adopted as cautiously accommodative, which de facto appeared to be tight, aiming at containing growing inflationary pressure.

At the end of May 2023, the point-to-point rate of inflation stood at 9.94 per cent (12-month average at 8.84 per cent) as compared with 7.42 per cent (12-month average at 5.99 per cent) in the same period of last year, which was mainly due to supply-chain disruptions generated through external channels.

“Persistent high inflation can have various detrimental effects on the economy. It reduces the purchasing power of money, disproportionately affecting the fixed-income earning and poorer segment of the population, creates uncertainty, distorts price signals, exacerbates income inequality, undermines confidence, contributes to financial instability, affects international competitiveness, and can lead to a wage-price spiral.”

“Given these implications, controlling inflation and maintaining a stable economic environment is the highest priority for the central bank,” it said.

BB has taken measures to address both demand-side stress and supply-side bottlenecks in order to control inflation. The central bank has increased its policy rate, the repo rate, from 5.00 per cent to 6.00 per cent in different phases of FY23.

Additionally, BB has conducted substantial sales of US dollars in the market, facilitating automatic quantitative tightening. Furthermore, BB has implemented effective supply-side interventions and undertaken various steps to stimulate employment and investment opportunities while ensuring a sufficient flow of funds to productive sectors.

The central bank has introduced pre-financing and refinancing schemes for agriculture, CMSMEs (Cottage, Micro, Small, and Medium Enterprises), and import-substituting industries.