Can downward inflation curve be sustained?

Rising prices of food, energy and commodity coupled with depreciation of Bangladesh Taka (BDT) against US Dollar (USD) contributed to higher inflation throughout last year (2024) with the rate reaching a 12-year high in July at 11.7 per cent. The major driver of this high inflation was food inflation which in July surged to 14.1 per cent, a 13-year high.  Later, the headline inflation gradually moderated and went down to 9.92 per cent in September (2024). But it again went up and continued to remain at two-digit level throughout the year.

Against this rather depressing backdrop, the Bangladesh Bureau of Statistics (BBS) last Tuesday (February 4) came up with the reassuring report that last month the inflation did come down to a single digit, 9.94 per cent, which is one percentage point lower than what it was by the end of last year (December) at 10.89 per cent. However, the credit for this encouraging development has been given to abundant supply of winter vegetables in the market which drove down the overall inflation rate to the reported record low level.

While appreciating the fall in last month's inflation, worries still remain in the general consumers' mind since they saw a similar fall in September last year, but it could not be sustained in the long run. Add to that the strong possibility that the vegetables supply would dwindle and their prices might again rise in the coming months to offset the gains achieved in January. At the same time, one cannot lose sight of the fact that the food inflation has still remained high above 10 per cent in the urban as well as rural contexts, especially due to the unpredictability of the staple market. Also, one needs to take into account the steady rise in the non-food inflation in both urban and rural areas. On this score, the central bank is learnt to have blamed the higher prices of staples and edible oils at the retail level as the factors that are  pushing up the inflation rate thereby dampening the efforts at curbing it using various measures including tightening of money supply.

Naturally, the concern still remains in public mind about the sustainability of January's relatively low inflation rate, despite the finance adviser's reassuring words that measures including the tight monetary policy now in force would be able to maintain consumer price at this comfortable level and that by June, it would go down further to between 6.0 and 7.0 per cent. In this connection to dispel any misgivings expressed by some who often draw the instance of Sri Lanka, the finance boss would like to console them referring to the  smaller size of that island nation's economy as well as the differences in the realties of Bangladesh and Sri Lanka. But whatever the differences in the details of the factors that led the economic downturn and high inflation rate in either country, the fact remains that the monetary tool used to bring down inflation level in Siri Lanka worked far more effectively than it did in Bangladesh. In that case consider that Sri Lanka's annual inflation rate surged astronomically  to over 70 per cent in August 2022, while the food price rose by 84.6 per cent compared to what it was during the year before. But thanks to the prudent monetary policy pursued by that country's central bank, the inflation gradually declined and in November last year, it dropped to as low as 2.1 per cent which was the lowest ever in that country since 1961. But in Bangladesh around that time, the inflation rate was as high as 11.38 per cent. So, the public can't be blamed if they take any assurances from the government in this regard with a pinch of salt.  Hopefully, the interim government will succeed in arresting inflation at the promised level to meet the public's expectation.