The annual average rate of inflation is likely to cross 6.0 per cent level by the end of the current fiscal year (FY22), according to the central bank’s inflation expectation survey.
Around 77 per cent of the respondents, surveyed to gauge the inflation expectation in near future, expect one-year-ahead average inflation to be above 6.0 per cent.
Annual Monetary Policy Review, released Tuesday evening, mentioned the result of the inflation expectation survey without any elaboration, adding Bangladesh Bank’s staff projections on inflation for the remaining period of 2022 are also consistent with the inflation expectation survey results.
The graphics depicting the inflation expectation showed that above 6.0 per cent means it may even reach as high as 8.5 per cent by the end of December this year. The review report, however, does not provide any explanatory note in this regard keeping the thing somewhat ambiguous.
The review mentioned that 12- month average CPI inflation for the first half of FY22 stood at 5.55 per cent against the government target of 5.30 per cent for the current fiscal year.
Food and non-food average inflation during the period was recorded at 5.30 per cent and 5.93 per cent. respectively.
“Although 12- month average food inflation is seen to be moving marginally downward from 5.68 per cent in July 2021 to 5.30 per cent in December 2021, 12-month average non-food inflation increased substantially from 5.33 per cent in July 2021 to 5.93 per cent in December 2021,” said the review report.
“Moreover, the 12-month average core inflation, which excludes food, oil, and other volatile commodity prices, kept rising steadily to 6.98 per cent in December 2021, indicating rising inflationary pressure,” the review added.
Monetary Policy Statement for FY22 projected that the average CPI inflation would be moderated and tolerable at a targeted single-digit rate of 5.30 per cent.
The review, however, mentioned that during the first half of FY22, the actual average CPI headline inflation was 5.60 per cent which was slightly above the target.
“The faster recovery in the international commodity and energy prices signalled inflationary pressures from external sources,” said the monetary policy review.
“Moreover, recent upward adjustments of administered energy prices in the domestic economy have created some upward pressures on the prices of non-food commodities to some extent through an increase in production cost and transportation cost,” the review continued.
“In addition, inflation expectations may heighten owing to the rising fuel and edible oil price hike,” it further added.
The review explained that the lagged pass-through to broader inflation from higher food and oil prices for import items might exert additional upward pressure on internal inflation in Bangladesh.
It also cautioned that further risks might develop from the external sector as domestic currency, Bangladesh Taka, is depreciating (against the US Dollar) rapidly.
“Moreover, the recent uptick in the asset price index, especially the stock price index and real estate price index may further exacerbate the upside-risk of inflation,” added the report.
To contain the inflationary pressure, as per the review, Bangladesh Bank will remain cautious and ensure a prudent monetary stance to maintain the price stability.
In this connection, the central bank is counting the slow broad money growth and healthy food production in the agricultural sector. These two factors ‘may be helpful in keeping the inflation rate within a tolerable limit’, thinks Bangladesh Bank.
The central bank, however, is cautious regarding the growing pressure on the balance of payments (BoP) due to negative remittance growth and robust growth of import payments largely stemming from the upward trend of commodity prices at the international market.
“Therefore, the BB is cautiously active and vigilant for taking appropriate policy measures on the development of exchange rate depreciation and inflation expectation,” said the monetary policy review.