Home ›› 03 Feb 2023 ›› Opinion
The vast majority of people suffer from the price spiral of essential commodities from last year. People who have limited income are the worst victims. There are many reasons for such a price spiral--the Ukraine-Russia war, global food supply chain disruption, the increase in fuel prices, the dollar crisis, currency devaluation, etc.
Recent upward trends in inflation in our country mainly started from the Ukraine-Russia war. For their safety, Ukraine destroyed their port stations so that any voyager from Russia could not stop at the Ukrainian ports.
War does not bring any good results. The produced essentials in Ukraine cannot ship for export to the destination country. The supply chain broke up, and prices of commodities hiked. Supply chain disruption contributes significantly to the high trend of inflation.
Six places in the world are considered Bread Baskets or Agricultural Power Houses. If any instability occurs in these six places, more or less, the world as a whole suffers from that. One of the Bread of Basket is Russian and Ukrainian areas. The world suffers if any of these six breadbaskets are affected.
We all know that one part of these six places is now at war. That is Russian and Ukrainian areas. A middle area of Russia is named- Central Black Earth Region. Due to containing a high amount of Ammonia and Phosphate, this area is highly fertile. That’s why a good quantity of food is produced here.
Among these six Bread of Basket-Russia-Ukraine areas are now engaged in a war that cannot bring any win for the two countries. In Ukrainian regions, there was no harvesting in the spring session (April to May 2022, September to November 2022). So, the problem is becoming more acute.
However, many countries depend on fertilizer to produce food items. A part of the Agricultural Power House is Brazil. It cannot produce agri-food optimum level due to war as it depends on Ukraine-Russia fertilizer. Forcedly, Brazil including other countries, tries to purchase fertilizer from other countries at a high cost.
In this case, other export countries have increased the price of fertilizer. As a result, the production cost is higher; subsequently, the sales price is also higher. High production cost increases inflationary trends.
Bangladesh Petroleum Corporation (BPC) increased the fuel price by 51.68 per cent last year. The process of fuel price increase in Bangladesh is that the BPC has to first propose a rise in price to the Energy Regulatory Commission (BERC). The BERC has to arrange a public hearing.
Then the price would be fixed through a public hearing.
According to the Bangladesh Energy Regulatory Commission Act-2003, section 34 (1) of the BERC Act, notwithstanding anything contained in any other law for the time being in force, the price of power generation in wholesale, bulk, and retail, and the supply of energy at the level of end-user, will be determined by the policy and methodology made by the commission in consultation with the government.
Section 34 (4) further states that the commission shall “determine tariff after giving hearing to licensees and others who have interest in it.” The punishment for violating the law as per Section 42 includes three years’ imprisonment or a fine of Tk 5,000.
Now the question is the increase in fuel price was mandatory. In the last seven years, the Bangladesh Petroleum Corporation (BPC) made a considerable profit without any price cut though fuel prices fell in the international market.
The authorities are making fuel gains from two sides. They are collecting a 30%-32% duty on fuel oil. Besides, the BPC profited for a long time as it did not lower the prices despite the global market fall.
According to GlobalPetrolPrices.com, there are three types
of processes fixing fuel prices-
1. Market-determined retail fuel prices. 2. Price ceiling. 03. Fixed price.
But it is a matter of concern that Bangladesh follows the last one. A media report from the Daily Star stated that the government had enhanced the consumer-level price of electricity by 5 per cent bypassing the public hearing of the Bangladesh Energy Regulatory Commission.
The hike will be effective from January 2023, according to a notice from the ministry of power, energy, and mineral resources. During a hearing on January 8, 2023, the technical evaluation committee of the BERC recommended raising the retail electricity price by 15 per cent. BERC was supposed to declare the new price within 60 working days of the hearing. The state minister for power, energy, and mineral resources says that the price will be adjusted every month. This fuel price and electricity price increase has pushed the mass people in sufferings. This increasing fuel and electricity price trend has confirmed the high inflationary trend. BERC bill 2023 has been amended in parliament while writing this article.
The world has also witnessed the US seized the US dollar reserves of Afghanistan and Russia. Among these confiscated reserves are USD 300 billion Russian, equivalent to 35 per cent of its GDP.
While seizing Afghan or Russian reserves may feel righteous and just, the immediate effect of such actions is to completely undermine the credibility of dollar debt as an international savings device. It is a great lesson for other countries. Now other countries consider that if they keep reserves in the form of US dollars, anytime they might face sanctions by the USA and allies countries in the future and fear the loss of the reserves. In the meantime, the Federal Reserve of the USA increased interest rates three times last year.
Mass people blame the Russian invasion on Ukraine. But increasing interest rates by Fed is vital in such a spiral. Suppose the interest rate is higher in the USA than in other countries. In that case, there is a great chance to transfer the amount to American banks or banks supported by the US, located in any country via Money Laundering, Hundi, by any third-countries due to gaining returns without any business activities. Such activities contribute to increasing inflation. Our currency has been devaluated against the US dollar. It reached its highest peak in history in the curb market on August 10, 2022; it hit Tk.119.90 against the US dollar. If no supply chain disruption, fuel price increase, war, or global dollar crisis occurs, inflation will be high in the country by only cause of Taka devaluation.
An increase in inflation means that prices have risen. With an increase in inflation, there is a decline in the purchasing power of money, which spends more money to buy the same product, and therefore GDP decreases. High inflation can make investments less desirable since it creates uncertainty for the future, and it can also affect the balance of payments because exports become more expensive. As a result, GDP decreases further. So, GDP is negatively related to inflation. However, there are studies indicating that there may also be a positive relationship. The Phillips curve, for example, shows that high inflation is consistent with low unemployment rates, implying a positive impact on economic growth.
This increasing trend of inflation forces people to hold more cash in their hands. People spend more money than earlier to buy the same product.
According to BBS (Bangladesh Bureau of Statistics), the country’s inflation rate on a point-to-point basis in December 2022 is 8.71 per cent, and in November 2022 is 8.85 per cent.
A local newspaper stated that the cash outside the country’s banks soared to a record Tk 2,42,026 crore in July as people held money in their hands to meet rising living costs.
Bangladesh Bank data showed that cash outside banks hit its highest in April when it was at Tk 2,36,791 crore.
The amount of cash outside the banking system was Tk 2,36,448 crore in June 2022 and Tk 2,09,517 crore in June 2021. The amount of money outside the country’s banks soared to record Tk 2,52,982 crore in November 2022 as people rushed to withdraw their deposits and held money in their hands.
The deposit decline of all banks in the country mainly resulted from high inflationary trends.
The writer is a banker. He can be contacted at [email protected]
