Food inflation hits new high at 12.5pc

Food inflation hits a new high at 12.54 per cent by latest official count as price rises look unstoppable on the wayward Bangladesh market, even as global dearth eases.

The August 2023 peak in the consumer price indices happens to be the highest in 12 years, according to statistics Bangladesh Bureau of Statistics (BBS) published Sunday.

Last month's inflation rise on a year-on-year basis was driven by rising costs of several food items, which also pushed up the overall headline inflation.

Rural food inflation was, however, recorded at 12.71 per cent in the month under review while in urban areas it was 12.11 per cent.

Under the impact of higher food account in people's living, the overall headline inflation also spiked further to 9.92 per cent at national level. But non-food or core inflation, which excludes both food and fuel costs, at the national level dropped by 1.52 percentage points to 7.95 per cent in August.

The 12-month moving average in August stood at 9.24 per cent, the BBS showed in its data on this vital one of the country's macroeconomic parameters.

On a month-on-month basis, the food inflation rose 6.51 per cent in August--faster than the 0.44-percent increase recorded in July.

Economists contacted by the Financial Express (FE) said there are two key reasons behind the sharp rise in food inflation in the economy which erodes money's real power and hits hard people, especially the poor-bracket segment of the population.

One major reason is import restriction by the central bank on many key goods. The Bangladesh Bank has been discouraging import to keep the country's foreign-exchange reserves stable amid a global and local financial volatility.

The second reason they mentioned is there has been a price manipulation of some essentials in retailing in recent months. They named some goods for an example, such as eggs, potatoes, and onions.

Dr Mustafa K. Mujeri, executive director of the Institute for Inclusive Finance and Development (InM), says: "The forex-market volatility is a key reason as many cannot import goods for the local market."

He notes that there are many interest groups that are often blamed for hoarding essential goods, leading to volatility on the retail market.

"They (interest groups) are making money on some goods as we witnessed in recent period," the economist says, adding that the domestic market is not working properly.

"There are invisible hands that control the market."

He finds no effective market supervision. "There are such supervision teams on paper only, not real," says Dr Mujeri, who once worked as chief economist of the Bangladesh Bank.

"I think strengthening the open-market sale or OMS cannot intervene in the market, rather we should put stress on how to functionalise the market forces."

Chairman of the Policy Exchange of Bangladesh Dr M. Masrur Reaz takes the official BBS data on inflation with a grain of salt.

"I'm not convinced with the BBS data of more than 12-percent food inflation. To my mind, the inflation will be much higher-retail prices of potatoes, eggs, and meat all will be much higher than that in the BBS data," he told the FE correspondent.

Dr Masrur does not see any external causes behind the high food prices. "The impact of war in Ukraine has eased globally."

Rather he mentions that there is manipulation by some groups.

He, however, says the dollar is a key reason as many can't import raw materials that are needed to manufacture food to feed the domestic market.

In the meantime, people at the Bangladesh Bank told the FE that there would be at least six more months to get results of its new interest regime called SMART.

They presume the interest rates should be much higher as part of containing the inflation.

"The latest rise in inflation may raise pressure on the central bank to increase rates and slow the rate of credit growth in economy," said one of them.

The government has an annual target of keeping inflation pegged to 6.0 per cent for the current fiscal year (FY2023-24).

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