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Inflation may remain high in the financial year 2022-23 amid a supply shock in the wake of an increase in fuel and energy prices, which is not abating soon, the Bangladesh Bank forecasted in its quarterly report released on Wednesday.
The BB in its report said, ‘Inflation is likely to remain around current levels for much of FY23 due to the large supply shock associated with the increase in fuel and electricity prices.’
Strong domestic demand, coupled with persistent supply shocks resulted in the core inflation to rise to 8.39 per cent in September 2022 from 6.24 per cent in June 2022, it said.
‘The inflationary effect from the Russia-Ukraine war has proven to be lasting for both energy and food prices, with the little prospect of those price pressures abating very soon.’
The overall inflation was at 8.71 per cent in December, according to the Bangladesh Bureau of Statistics.
‘The delayed pass-through of past price hikes in food and energy from global commodity markets to consumer prices may continue to persist a high inflation in the short term. Higher level of inflation in energy prices might have second-round implications through higher transport and electricity costs for businesses,’ the central bank report said.
It said, ‘The growth momentum of nominal wage was much lower than CPI inflation, but gradually moving upward since January 2022, compensating the price surge of necessary goods.’
The overall wage rate inched up to 6.86 per cent in September from 6.47 per cent in June 2022.
The point-to-point CPI inflation in rural and urban areas rose to 9.13 per cent and 9.03 per cent in September 2022 from 8.09 per cent and 6.62 per cent in June 2022.
Global supply chain issues continue that have slowed production and shipping, the report said.
Ongoing uncertainties could emerge due to the slowdown of major economies and overshooting cost-of-living driven by persistent and increasing inflationary pressures, the BB said.
The significant depreciation of local currency, rising interest rates in global markets and tight global financial condition may lift the cost of foreign borrowings and debt burden, it also said.
The continued challenges of the global economy may have some negative externalities over the Bangladesh economy, the report said.
Policymakers should continue to remain vigilant and work on various alternative policy options to sustain against any adverse global economic shock, it suggested.
The private sector credit growth which has increased gradually in recent quarters is expected to be moderated soon as external trade related financing will be lesser in coming periods as global commodity prices are declining.
The BB will continue its prudential and timely policy measures to implement its monetary targets while controlling inflation at tolerable levels, it said.
However, the country’s economy is expected to remain broadly stable during FY23 amid various active and timely measures of the government and the BB, the central bank report said.
The adoption of some policy initiatives for increasing export and remittance inflows and limiting luxury and unnecessary imports are expected to help improve current account balance and stabilise the exchange rates in the coming months.
However, exchange rate volatility emanating from the Russia-Ukraine war and worsening non-performing loans will remain a concern in the coming months, it predicted.
Sizable private sector credit off-take, falling deposit growth on the back of negative real interest rates on deposits and increased bank spending on dollars somewhat squeezed up the banking system liquidity, it said.
(NA)
