A continued upward trend in inflation has been noticed during the last several months, except in September, when it dropped a little, only to resume in October.

The inflation rate hit a 6-year high of 7.93 percent on a point-to-point basis in August, dropped to 7.01 percent in September, much to people's relief, but then soared again to 7.28 percent in October.

In October, the rate of inflation in non-food items was 7.12 percent, up by .46 percentage points from the previous month's, while the rate in food items was 7.42 percent, 0.22 percentage points higher than that of September.

The inflation scenario in September was the opposite, when the rate dropped in case of food items but rose in non-food ones from August.

FACTORS FUELLING INFLATION
In the first week of September, the domestic retail prices of diesel and kerosene were raised by 15 percent, petrol by 17 percent and octane by 18 percent a litre.

According to the Bangladesh Bank (BB) statistics, from July to October taka lost 3 percent value against US dollar.

A Bangladesh Bureau of Statistics (BBS) source said these two factors have been negatively affecting the inflation rates of both food and non-food items.

A BB policy analysis review released last week said globally inflation in 2005 has been showing an increasing tendency mainly due to higher energy prices in the international market. But, it said, "Direct inflationary effects of the oil price increase have been limited due to the incomplete pass-through in view of the government's policy on administered retail price of petroleum products in the domestic market."

"However, increased prices of imported goods combined with the rise in import prices due to the Taka depreciation also fuelled inflationary pressures in the economy," the BB maintained.

The BB review warned of a further rise in the inflation rate, saying, "The continuing risk elements include the possible consequences of excess public borrowing in view of the sustained historically high oil price and delays in the disbursement of donor fund component of ADP." This review also assesses the currency markets to remain weak for the balance of FY06, which adds another dimension to the inflation build-up."

The BB also cautioned about the "spectre of rising real interest rate in the global economy and the associated increase in the inflationary expectations in the industrial countries, which are the source of most of Bangladesh imports." It also noted that "In the domestic scene, the possibility of another round of upward revision in the set of administered energy tariffs cannot be ruled out."

On the positive side, the review predicted that the 12-month average inflation in the current fiscal year is unlikely to exceed 7.00 percent in view of the bumper aman harvest and on the assumption that the tightened monetary policy stance will be maintained.