Vol. 5 Num 571 Tue. January 03, 2006  
Front Page

Inflation rate hits 8yr high in November
Higher flare-up in rural areas, food items hurts poor most

The point-to-point inflation rate hit a new 8-year high of 7.95 percent in November last, rising by 0.67 percentage points from October, due to a sudden leap in food prices.

According to the Bangladesh Bureau of Statistics (BBS), the rate was higher in rural areas than the urban ones, aggravating the continued miseries of the rural poor.

The inflation rate was 7.06 percent on a point-to-point basis in fiscal year (FY) 1998-99 caused mainly by a devastating flooding. Since then, until October 2005, the highest inflation rate was marked at 7.93 percent in August 2005.

In line with a recent trend of higher inflation in rural areas, the point-to-point rate of inflation soared from 6.62 percent in June 2005 to as high as 8.70 percent in November. In contrast, the rate in urban areas was 6.14 percent in June, from which it had consistently slid to stand at 4.96 percent in November.

In November, the inflation rate in food items was 8.58 percent, soaring from October's 7.42 percent. On the other hand, the rate in non-food items ebbed slightly from 7.12 percent in October to 7.03 percent in November.

Bangladesh Institute of Development Studies (BIDS) Research Director Zaid Bakht said the trend of inflation rate hike hits the poor more severely, as "they have little ability to adjust with the increased prices of essentials. It's very difficult for them to expand their income to match the higher commodity prices. The higher inflation rate in food items also affects them more as they are the main consumers."

Bakht said the increased government borrowing from the banking sector is one of the reasons for the persistent upward flight of inflation. "The government has no control over public expenditure that compels it to borrow more money from the banking sector," he remarked, adding, "Depreciation of taka is another reason for the skyrocketing inflation."

Until mid-December in FY06, the government's bank borrowing was Tk 4,368 crore, of which around Tk 3,500 crore came from the Bangladesh Bank. On the other hand, taka lost about 9 percent of its value against US dollar over the last one year.

Besides, Bakth said, there is no open-way competitive system for import, which has given rise to the hegemony of a particular section of businessmen on import and also creates opportunity for them to manipulate the prices of imported goods. For instance, he mentioned the recent price hike in sugar.

He said the several domestic fuel price hikes last year have had some incremental adverse effects like inflated irrigation and transport costs that ultimately pushed up the prices of food and other essentials.

Bakht's comments agree with what Bangladesh Bank Governor Salehuddin Ahmed told The Daily Star last Tuesday. He said, apart from the tight monetary policy, there are other reasons for the inflation flare-up, "which are beyond our jurisdiction and we have informed the commerce ministry about these issues."

The production of rice has been good, the governor said, and other consumer products have also been imported adequately. "But, for some reasons, these are not coming to the market. Perhaps they are being hoarded," he observed.