Wednesday | 15 January 2025 | Reg No- 06
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Wednesday | 15 January 2025 | Epaper

Sliding inflation syndrome

Published : Saturday, 21 January, 2017 at 12:00 AM  Count : 228
Haradhan Ganguly
Sliding inflation should not be encouraged any more. It could carry a wearisome message for economic activities so far investment and producer are concerned. We should keep in mind prevalence of mild inflationary trends revamps productivity. Respite in consumer market due to sliding of inflation never lasts long or turns to be secular (in economic term). Instead, it brings in deflation (continuous fall in prices of goods and services and the amount of money in circulation) which is more dangerous for the economy.
Breathing space that is created due to a fall in prices of goods and services is becoming pale soon. One kind of disincentive is hovering on productive sectors inviting grim end to it. Since inflation is the major player in preserving or upsetting macro stability, it is a necessary evil. But deflation is more evil. It leads economic productivity to a standoff situation.
In a developing country like Bangladesh, inflationary trends are natural co-efficient of development. What is to do is just to keep it mild, which means a boost to investment---the lifeblood of the economy. Institutional intervention and policy measures must be framed accordingly so that inflation can be kept mild. It is to be viewed not only from consumers' point of view but producers' concerns must also be taken to consideration. We want mild inflationary trends to be continued.
Planning Minister A H M Mustafa Kamal informed that inflation came down to 5.03 per cent, the lowest in last 53 months, being helped by a steady decline in non-food prices since June last as well as a lack of supply disruption, thanks to a stable political environment. To him, political stability played a key role in reducing consumer prices. Overall inflation went down 35 basis points in the last month of the year from November's 5.38 percent. This was led by the fall in non-food inflation which dropped to 4.49 per cent in December, a decline of 88 basis points from 5.33 per cent a month earlier, according to official statistics.
But this declining inflation is contributed not by the results of policy measures but by the steady decline in non-food inflation since June 2016, caused by weakening of aggregate demand by a large decline in remittances. The fall in remittance reduced the purchasing power in both rural and urban areas significantly. Official statistics tells us remittance inflow slumped by about $2 billion in 2016 than it was a year earlier, despite a 35 per cent increase in migrant worker outflow during the period.
In addition, there were no upward adjustments in the administered prices of gas and electricity that could sustain the cost push impact of the earlier increases in these prices. But the other good news in the December inflation number is the stabilisation of food inflation following continuous increase from June onwards. This hopefully will not change as rice prices stabilise with the harvesting of the aman crop. There is also a sharp drop in inflation in rural areas, dropping to 4.46 per cent in December from 4.75 per cent a month ago which is far below the national average. The urban sector also sees the down by nearly half a percentage point to 6.07 per cent in December compared to that of November.
The government has aimed to keep the inflation rate within 5.8 per cent in the current fiscal year. It should be stopped right now. It should not be let go further down. Ever sliding inflation after a certain threshold would go against the productivity of the economy which finally would be washing out the pleasure of consumers. Too much cut-price of goods and services does not always manifest the soundness of the economy, since it never lasts long or ends in stagnation. We think the current inflation is favourable for the government to undertake another bunch of mega projects like the Dhaka subway rail, an elevated bullet train between Chittagong, Dhaka and Khulna, the second Brahmaputra Bridge in Mymensingh and its rapid connectivity with the land port in Nakugaon. At least Dhaka subway rail project is a must for the largest growth centre of Bangladesh.
The stagnant state in private investment is going to be melted. Centre for Policy Dialogue in its last review on 7 January said, "Private investment's share in GDP increased significantly to 23.0 per cent in FY2016 compared to that of FY2015 and is the highest in the last 21 years." This upturn in private investment is somewhat of a surprise! CPD termed it "We see only sparks in the private sector investment. It has to be seen if it turns into a fire." We are hurried about turning it into a fire. Here galloping inflation or ever sliding after a certain threshold will cause downfall in the economy.
From the economic point of view, we have completed a successful year, no doubt. Areas of strength have been consolidated while weaknesses are seen traditionally strong in the areas of remittance, export and agriculture. Lack of good governance is still persisting in the banking sector. FY2016 is comparatively a subdued year for crop production. Except for Aman, Maize and Onion, production growth figures for all other major crops were rather discouraging. Apart from Aman, all other crops have registered negative growth rates compared to those of FY2015. Curiously distribution of rice and wheat saw a strong growth, i.e. 12.3 per cent in the backdrop of the decline in import, procurement and stock. The banking sector continues to suffer from inherent weaknesses. The main concerns are the rising amount of non-performing loans and growing excess liquidity. Talks have been there on forming a banking commission for the last few years to sort out the accumulating problems in the sector. The finance minister even spoke of forming such a commission in his last budget speech. We expect the coming financial year will see the light of formation of a banking commission.
Another risk area of the economy is the slow implementation of annual development programmes. It is running as it is. Media sources say although six months have already passed, merely 25 per cent of total ADP expenditures have been done by the ministries responsible. Remember that 55 ministries and divisions are mainly entrusted to the implementation of ADP. Out of those, 27 ministries and divisions still are failing even to spend one fourth of the allotment. Up to December last, only TK 33 thousand 444 crore was possible to spend out of TK 1 lakh 23 thousand 346 crore of ADP. A snail's pace initially and an unusual speed in the last quarter of fiscal year in spending the portion of ADP is our customary scenario of ADP implementation. So the question of quality implementation of ADP is remaining unsolved.
On the other hand, there are reasons to be somewhat sceptical about the ultimate outcome of the reform proposals that have reportedly been mooted by the Bangladesh Investment Development Authority (BIDA) to boost private investment, however pious may be its intention. An inter-ministerial meeting discussed recently the BIDA proposals. Such proposals aim at cutting substantially the unusually long time taken by the government agencies in delivering the necessary services to the prospective investors.
So, these risk factors are uneasy variables in the ongoing stability of macro economy. A rightful controlling of inflation, neither too much upturn nor too much recession, is a critical factor among others for a sound and balancing macro-economic functioning. Inflation at much sliding could never be a subject of complacency.r
Haradhan Ganguly --- Secretary, United Nations Association of Bangladesh-UNAB --- is a freelance contributor



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