Inflation inexplicable as prices manifold over production cost

Inflation in Bangladesh seems inexplicable with prices stubbornly staying manifold over production costs while it eases worldwide, a situation which some economists describe as 'greedflation' created by profiteers.

Prices of some prime essentials, for example, potatoes, chickens, eggs, and onions have escalated between 25 per cent and over 100 per cent over the past year.

The consumer-market situation here conspicuously stands in sharp contrast to the price indices abroad. By a latest account, the Eurozone inflation hit a two-year low at 4.3 per cent, and neighbours -- Sri Lanka in particular -- also relax now in rapid relief from high degrees of inflation.

Inflation count in Bangladesh, which considers 383 food and non-food items, in the first two months of this fiscal year had spiked 9.8 per cent on average, or 3.8-percentage points higher than the annual target.

Economists and analysts opine that 'greedflation' or bumper profits by a section of producers or suppliers or traders cannot be justified in any economy as it erodes people's real income, especially of the limited-income group of people.

The lower orders of society in pains for unaffordable prices include garment workers, day labourers, and such other limited-income breadwinners.

Potato prices cannot increase to such a measure as it was produced at least one year ago. Chickens, eggs and onions may see rise to some extent following depreciation of the local currency against the US dollar. The local currency, taka, weakened at least 14 per cent in the past year, in the wake of pressures on the country's foreign-exchange reserves.

Economists and other experts contacted by the FE writer said they found no justification for such rise in prices of essential commodities, when supplies are there.

"Potato-price rise cannot be justified in any consideration -- this goes to a new phenomenon called greedflation," says Dr M Masrur Reaz, chairman of Policy Exchange of Bangladesh.

Potato prices have gone up more than 100 per cent as the kitchen item sold up to Tk 55 a kilogram.

Dr Masrur says egg, onion and chicken prices have marked an exponential rise abruptly. "These goods also go for making super economic profits."

The overall production costs of potatoes, inclusive of cold storage charges, come to Tk 19 a kg, says Mojibur Rahman, an expert with Solidaridad, a Netherland-based NGO. At the farmers' level the cost of potato may go at best to Tk 14 a kg.

The total production was recorded nearly 11 million tonnes -- at least 1.0-million-tonne higher than the annual consumption.

Contacted, Md. Golam Sarour, a director of Bangladesh Cold Storages Association, said the production was lower than last year's as many cold-stage spaces remained vacant.

He also claimed the cost of preserving potatoes to be Tk 5.0 a kg.

Mohiuddin Ahmed, general secretary of Bangladesh Egg Producers Association, said the government cost-estimation of Tk 10.30 an egg at industry level "is correct". At the retail level it is selling between Tk 12.5 and 13 apiece.

Krishibid Anjan Majumder, an executive member of the Bangladesh Poultry Industries Association, termed the poultry industry import-based.

He said feed costs increased 45 per cent for meat-producing birds while 60 per cent for egg-producing chickens.

Inflation high as greater weight-goods high  

This FE writer obtained the weights assigned against goods of the consumer price index or CPI basket. These are very sensitive to inflation.

A greater weight on a piece of goods means that it represents much more than goods having smaller weights, according to economists.

Dr Mohammad Yunus, a research director of Bangladesh Institute of Development Studies (BIDS), says usually weight is given considering consumption patterns. Foods that have much demand are usually assigned greater weight. "Rice usually has the greatest weight in the CPI basket."

All types of rice have 10.84-percent weights, according to the BBS.

Potato weighs 1.02 per cent in total consumption. If potato prices increase 100 per cent, then its contribution to overall inflation would be 1.0 percent, said Dr. Yunus.

All four items -- potato, egg, onion, and chicken -- have nearly 5.0-percent weight in total 100 of the latest CPI basket using base year 2021-22.

Personal inflation remains too high.

The personal inflation remained higher than the national-level overall inflation.

Price hikes make things even harder for individual consumers wrestling with the rising cost of living. The personal-inflation rate is based on an individual's real cost of living. It varies from person to person and locality to locality.

People contacted over the matter said they skimp on food by cutting expenses amid the higher inflation.

Shakawat Khandker in Karwanbazar area maintains Excel for keeping accounts of his family budget. He says: "I have calculated price surges between two periods, for example, August 2022 and August 2023. I found around 22- percent surges this August."

He says his family has changed food habits by stopping consuming some protein items like meat and fish. "We are not buying beef and fish as I need to compensate with limited income."

His family's monthly expenditure is around Tk 40,000 -- an amount hardly enough to make two ends meet.

He also says: "I have stopped going to family functions and other ceremonies because I don't have the money to buy gifts to give on such occasions."

Pensioners are among the worst affected.

The persisting higher inflation is taking a substantial bite from the income of retirees from pensions and who rely on pension income.

Under such price surges, they are losing purchasing power as a result.

"The real value of that pension will go down," says Kazi Reazul Hoque, president of Bangladesh Obhoshor Samity

He is in a quandary as it is unclear how long the current rate of inflation will persist.

Nearly 750,000 people were getting income from government exchequer.

Given the dollar crisis and injecting 'high-powered money', there is little possibility of taming inflationary pressure immediately although it is easing in all economies and although many have been facing even deflation.

Global experience shows inflation can be tamed by demand-management policies even when inflation is supply-driven, according to Dr Zahid Hussain, an independent economist of Bangladesh.

He says monetary tightening and fiscal austerity do work, but more beyond that need to be done.

"We will also need to alleviate foreign-exchange shortage and guard against collusive practices in the market for essentials," Dr Hussain suggests.

Competition Commission has 23 cases on greedflation

The Competition Commission assigned to ensure fair market competition apparently looks on while alleged oligopolies make the most of the market waywardness.

People familiar with the matter at the Commission have said they have now 23 pending cases relating to manipulation of egg and chicken prices. He said the Commission filed the cases suo moto.

"Twelve cases have now matured to deliver sentences," said a member, wishing anonymity. It penalizes at maximum of 10 per cent of annual turnover.

Dr Masrur Reaz thinks the watchdog has failed as it does not have adequate skilled people and lacks proper empowerment.

A moot question crops up as to what happens in the event of such economic adversity prolonging over a long period.

"We saw that families sold their valuables to afford the expenses, and in many cases, the patient didn't even survive as the disease was chronic," said Dr Zahid Hussain.

This has a crippling effect on the family, emotionally as well as financially.

Dr Hussain, the former lead economist at the World Bank Dhaka office, notes that when consumer incomes don't keep up with inflation, it hurts all consumers.

Some, such as the poor and lower-middle class, are hurt more than others because of their limited coping capacity. Increases in food inflation increase both the incidence and depth of poverty.

"High and variable inflation discourages investment by making the rate-of- return calculations uncertain," the economist says on a note of caution about the contagious domino effect of inflation on the overall macroeconomic situation. He says investors tend to wait and see until they are able to assess with confidence the financial viability of investment projects. Persistently high inflation increases the option value of waiting.

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