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With data released by the Bangladesh Bureau of Statistics (BBS) saying that inflation hit a 10-year high in August, we are worried by the continuing inflationary trend, which seems poised to hit a boiling point.
Overall, inflation surged to 9.52% in August, then dropping to a still-high 9.10% in September.
Ordinary people, however, do not need BBS figures to know how badly prices have been spiraling in the recent months.
Their daily suffering stands as living proof of that.
Prices for some essentials even grew 30-50%.
Inflation, which has been ongoing since the outbreak of the pandemic in Bangladesh, has been out of control for the past several months due to higher food prices.
Typically, the blame for this is placed on global supply chain disruptions and trade uncertainties arising from the Russia-Ukraine war.
However, in the case of Bangladesh, the matter is more complex as there are additional factors which are also contributing to the soaring prices of commodities.
There are more informal forces at play here in the form of powerful syndicates as well as influential intermediaries that are using unscrupulous means to further boost their own exorbitant profits by taking advantage of a system that is rampantly corrupt.
Data shows that food inflation soared to 9.94% in August — the highest since April 2012 — and decreased slightly to 9.08% in September.
Non-food inflation, on the other hand, was 8.85% in August, but jumped to 9.13% in September, indicating that the inflationary momentum is yet to dissipate.
Another major concern is that inflation in rural areas has been worse than in urban areas — 9.70% in August, as opposed to 9.18% in urban areas during the same month.
Food inflation in rural areas was similarly higher, since markets there tend to be more volatile than those in urban areas.
As seen in other similar countries, this calls for greater government assistance for lower and fixed-income groups.
However, equally importantly, it indicates that the assistance needs to be better targeted, with food assistance for people living in rural areas becoming more urgent.
Additionally, while external shocks are big factors that are driving inflation, the recent fuel price hike in the country has, as anticipated, only made things much worse.
Therefore, we once again urge the government to consider lowering fuel prices at the earliest possible time, since it has had a cascading effect on prices of all other commodities.
The government also urgently needs to curb corruption and more so wastage in the energy sector, which have gone totally out of control, leading to the return of frequent load-shedding that is only increasing production costs and commodity prices for end consumers.
Remedies
Since there is no single policy intervention that can solve the current crisis, the government needs to try and tackle it on multiple fronts.
First, the government needs to scale up its subsidized food assistance program for the poor.
It needs to reduce corruption and mismanagement across all sectors, which seems to have become synonymous with governance these days.
Furthermore, the government needs to actively monitor the supply of essential commodities, such as different food items, and make sure that it is proactive in addressing any artificial supply shortage.
In that regard, regular market monitoring by relevant government agencies is vital to root out any collusive practices by powerful trade syndicates.
Taking cues from the past, equally important is food reserve or storage monitoring, so that we do not end up with any surprises.
Finally, the authorities may also utilize conventional yet proven to be highly effective, monetary economic measures to combat inflation.
In a free market-based system, Interest rates tend to move in the same direction as inflation but with lags, because interest rates are the primary tool used by central banks to manage inflation.
In general, higher interest rates are a policy response to rising inflation.
Conversely, when inflation is falling and economic growth slows, central banks may lower interest rates to stimulate the economy.
However, this highly effective tool for restricting inflation is not being allowed to apply in Bangladesh due to the cap on interest rate at 6% for deposits and 9% for lending.
Hence, Bangladesh is badly handicapped because the free-market forces that should be determining interest rates to combat inflation have essentially been made to be useless.
Such a cap appears to mostly favour a very small percentage of already very wealthy business elite and those who are addicted to low-cost funds.
Such a cap on interest rates may have been somewhat acceptable in times of low or no inflationary pressure but that is not the case at the present.
Urgent and decisive action is needed for the sake of preserving and protecting the livelihood of the people and so it is high time to remove the cap on interest rates because we are now in an emergency.
(DT)
