Tuesday | 14 January 2025 | Reg No- 06
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Tuesday | 14 January 2025 | Epaper
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Rising food inflation raises serious concerns 

Published : Tuesday, 7 January, 2025 at 12:00 AM  Count : 948
Arnab Ashraf
With food inflation running at 13.8 per cent (pc) in the country, it is affecting almost all levels of consumers including the low and fixed income groups which are the hardest-hit segments.

According to the Bangladesh Bureau of Statistics, the inflation rate for November 2024 was recorded at 11.39pc. Food inflation stood at 13.8pc, marking one of the highest levels in the past decade, while the non-food inflation exceeded 9.39pc. 

Price hikes for essential products are continuing to escalate, with the overall inflation showing a sign of slowing down. Political economy analysts think, the inflationary pressure is likely to persist until a stable political governance structure is established. Factually, during any period of political transition, market dynamics often become erratic, with market players deviating from standard practices, further exacerbating the price volatility.

The World Bank has raised concerns about the Bangladesh's rising food inflation, which is heavily impacting low-income households. It cited supply chain inefficiencies, agricultural challenges, and climate disruptions as key drivers. The IMF also warned that the inflation could harm the country's economic stability, linking it to global pressures, domestic supply issues, and the devaluation of the Taka. Bangladesh's Ministry of Food acknowledged these pressures, attributing the inflation to global commodity price hikes, supply chain disruptions, and seasonal shortages. 

Truly, the inflation has been a phenomenon that lingered in Bangladesh's economy in the wake of 2006-political turmoil [when by November the drastic fall of political govt of BNP had occurred, making Dr Fakhruddin Ahmed caretaker regime's chief adviser] and continuing to dominate the national discourse, affecting millions of households, businesses, and policymakers amid the so-called price hike squeezing purchasing capacities of general people and hindering the envisaged economic growth. 

Despite concerted efforts by the Bangladesh Bank and the government, the inflation remains persistently high. The World Bank projects a slight moderation in inflation to over 9pc by the end of FY25. Yet, the overall picture remains one of elevated prices, especially in food and energy. 

According to studies, political instability, supply-side disruption, and currency depreciation have all contributed to the inflationary spiral, with the most significant impact being felt by the low- and middle-income families. In rural areas, where poverty levels are higher, the inflation acts as a greater threat, often undermining small-scale farming and employment initiatives aimed at lifting people out of the poverty.

The inflationary pressure is extending beyond individual households to public finances. Higher prices for goods and services are pushing up the cost of running government programmes, from healthcare to education. The government's budget is strained, with the inflation raising the cost of importing goods, including medicines, machinery, and other necessary imports. This, in turn, is affecting the quality and availability of public services. 

As price rise has been unpredictable, businesses and consumers are becoming hesitant to make long-term financial commitments. For businesses, this translates into postponed investments and expansion plans, and for consumers, the inflation is undermining confidence, leading to delayed purchases. Both private and public sector investments are getting affected, and the resulting slowdown is very likely to diminish the economy's overall growth potential.



In response to the inflation, the Bangladesh Bank has maintained a contractionary monetary policy, raising interest rates to stave off the inflation-surge. And, while this approach can dampen inflationary pressures, it also raises the cost of borrowing, which can stifle business investment and household spending. Higher interest rates make loans more expensive, discouraging investment in capital goods and housing. This trade-off-between inflation control and economic growth- is posing a significant challenge for policymakers, as they seek to balance fiscal discipline with the need for continued developments.

According to independent economists, while the inflation is typically associated with negative outcomes, it also presents some unexpected advantages, particularly for borrowers, investors, and governments.

One of the key benefits of the inflation, mostly for borrowers, is the reduction in the real value of debt. For Bangladesh, this has notable implications for both the government and businesses. The inflation reduces the real burden of public and private debt, making it easier to service loans over time. This dynamic benefits the government, which can more easily manage its growing debt without facing severe financial strain. For businesses, too, the inflation can provide relief from heavy debt repayments, allowing them to reinvest savings into growth initiatives.

Now, when the inflation is anticipated to continue, consumers tend to accelerate their spending, fearing that prices will rise even further in the near future. This can result in a temporary boost in the demand for goods and services, which in turn stimulates the economic activity. Equally, businesses may seize the opportunity to invest in projects that will allow them to capitalize on rising prices. In Bangladesh, sectors, such as real estate, construction, and retail may see a spike in activity as both consumers and businesses seek to invest in tangible assets that are likely to appreciate in value.

In an inflationary environment, wages have the potential to rise as businesses compete for labour, especially in high-demand sectors. Though wage growth often lags behind inflation, under certain conditions, such as a robust growth phase, wages can exceed the inflation rate. In rural Bengal, where employment generation is crucial for poverty alleviation, the inflation may push small businesses to increase hiring in response to growing demand. 

The inflation often forces businesses to innovate and become more efficient to maintain profitability. Rising input costs may prompt companies to adopt new technologies or streamline their operations, leading to productivity gain, improved quality and much competitive business practices. 

The key to navigating inflation lies in the effective policy coordination. As Dr Wahiduddin Mahmud, planning and education adviser to the interim regime, has pointed out, the challenge lies not just in managing the inflation but in adjusting the development budget in ways that balance fiscal prudence with economic growth. 

Independent economists said, now, the monetary policy must remain adaptive, with the Bangladesh Bank continuing to fine-tune its approach to the inflation control. The effectiveness of interest rate adjustments and currency management will depend on how well the financial sector can transmit these policies into real economic outcomes. The long-term goal is needed to create a stable environment that encourages investment, innovation, and growth.

In fact, the inflation in Bangladesh has not been just an economic problem. It is a multifaceted challenge, requiring nuanced solutions, and, the key to managing the inflation is not just in controlling the price level but in ensuring that the broader economic structure remains resilient and adaptable. 

The writer is a journalist with The Daily Observer


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