Rising non-food inflation and expectations for upward inflation may become the challenges for Bangladesh Bank to contain the overall inflationary pressure in the coming days.
The latest quarterly review report of the central bank hinted at this without explicitly mentioning any concern in this regard.
“Looking ahead, a good harvest of food production may offset some inflation risks from the pass-through effects of global oil and commodity prices,” said the Bangladesh Bank Quarterly (April-June, 2018) released Tuesday.
“However, rising non-food inflation and inflation expectations may constrain any significant improvement in the inflation momentum,” it added.
The quarterly mentioned that annual average headline inflation edged down to 5.78 per cent in the last quarter of the past fiscal year (FY18), mainly ‘due to moderating food inflation’ after rising gradually since the last quarter of FY17.
“The decomposition of headline inflation shows that of the 5.78 per cent inflation in June 2018, almost three-fourths of the increase (4.30 per cent) came from food inflation and the rest (1.48 per cent) from non-food inflation,” it added.
The quarterly also pointed out that point-to-point inflation continued its downward trajectory and reached 5.54 per cent in the last quarter of FY18.
“This favourable inflation dynamics reflected food inflation from better harvests,” the central bank publication explained.
“Food inflation eased to 5.98 per cent in June 2018, down from 7.09 per cent in March 2018,” it added.
But non-food inflation crept up to 4.87 per cent in the period under review which reflected a strong demand and inflation expectations, added the quarterly.
The publication also mentioned that the central bank’s survey on inflation expectation in July this year indicated that households expect inflation to rise more from the current level over the next one year.
“It also indicates that around 70 per cent of the respondents expect one-year-ahead average inflation to be above six per cent,” it added.
“Household's inflation expectations are mainly influenced by the movements in prices of food items, reflecting their consumption basket,” it added.
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