Rising energy prices push up inflation
Bangladeshi consumers were hit even harder in November as inflation continued to rise, driven mainly by non-food inflation as the effects of rising diesel and kerosene prices last month set in.
The consumer price index (CPI) rose 28 basis points to a 13-month high of 5.98 percent, from 5.7 percent in October. This is an increase for the fourth consecutive month, according to the Bangladesh Bureau of Statistics.
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Non-food inflation, which jumped 39 basis points to a high of 63 months, was the driving force behind the rise in general inflation.
Non-food inflation jumped to 6.87% last month from 6.48% a month ago, the highest since August 2016, according to data from the Bangladesh Bank.
In an effort to halt the losses of state-owned Bangladesh Petroleum Corporation due to soaring global energy prices, the government increased the price of diesel and kerosene by 23% in the first week of November, the largest increase in a decade.
The move prompted public transport operators to go on strike across the country, inflicting immense suffering on the population and crippling the flow of goods.
Three days later, the government increased the price of the bus by as much as 28 percent and launched the fares up to 43 percent to appease operators.
“Inflation in Bangladesh is catching up with global trends,” Zahid Hussain, a leading economist, told the Daily Star.
As in the case of the rest of the world, the surge in costs was the most important driver, which, in turn, came from increases in energy prices.
Prices in the transport and communications sector rose the most, at 2.3 percentage points, in November compared to the previous month, he added.
“Unfortunately, the inflationary impact of rising energy prices could continue for a few more months as the ripple effects spill over into the rest of the economy,” said Hussain, also a former chief economist. from the World Bank office in Dhaka.
As the global economy recovers from the pandemic, inflation is rising in advanced and emerging economies.
The pent-up demand fueled by the stimulus and pandemic disruption is helping to accelerate inflation, which is spreading around the world through global factors such as rising food and energy prices and skyrocketing prices. shipping costs, the International Monetary Fund said last week.
Personal consumption spending, a measure of core inflation in the United States, jumped 5.7% year-on-year in November, the biggest jump in nearly 40 years.
Food inflation in Bangladesh is also at a higher level due to high commodity prices at home and abroad. It rose 21 basis points to 5.43% in November, the highest in five months.
In Bangladesh, commodity prices have skyrocketed in recent months, due to record price levels in world markets, unprecedented transport costs and supply constraints.
The attraction of demand has also played a role, as evidenced by rising prices for clothing, footwear, furniture and leisure.
Rising inflation has created a difficult trilemma for the Ministry of Finance and the Bank of Bangladesh, according to Hussain. “Inflation reduces the real purchasing power of consumers. As a result, the incentives for companies to invest are compromised. Fiscal expansion to repair the damage can backfire by fueling inflation further.
Hussain said the central bank had set a target for private credit growth of 14.8%. To achieve this, the BB must ensure adequate liquidity in the banking system while maintaining the 9% cap on the lending rate.
“Excessive demand in the forex market has created pressure on the exchange rate. If the exchange rate depreciates too much and too quickly, this could further fuel inflationary pressures. “
Tax policy aimed at protecting the incomes of the poor is still achievable.
“Allowing a smooth exchange rate adjustment without harming credit growth requires a review of the interest rate cap to maintain the incentive to lend.
The consumer price index figure given by the government does not reflect the real situation, said Towfiqul Islam Khan, senior researcher at the Center for Policy Dialogue.
According to the economist, there are three main reasons for the rise in inflation: soaring world commodity prices, the devaluation of the exchange rate which has driven up imported inflation and higher prices of energy.
In addition, a recovery in demand has contributed to the rise in inflation, he said.
“The current nature of inflation hurts the marginalized and those who have lost their income as a result of the pandemic. Thus, managing inflation has become more important than ever.”