Domestic factors undermining price stability

The latest Bangladesh Bank analysis of inflation may explain why a stable exchange rate has largely failed to translate into lower consumer prices and why a tight monetary policy has so far failed to bring inflation rate down to the desired level. The central bank's analysis reveals that the country's inflation profile is now overwhelmingly driven by domestic factors, with locally produced goods accounting for 75.6 per cent of inflation headlines during the first quarter of the 2025-26 fiscal year, while the share of import-dependent items has declined to 24.4 per cent. This indicates that the economy is no longer suffering from imported shocks; rather, inflationary pressures are now largely home-grown, stemming from supply constraints, rising production costs and market manipulation.  This sobering analysis from the Bangladesh Bank serves as both a warning and a call to action for policymakers to recalibrate existing economic policies aimed at controlling inflation.

Although point-to-point inflation eased slightly to 8.17 per cent in October from 8.36 per cent in September, consumer sentiment remains dampened by erratic price patterns. A glaring example is the sudden surge in onion prices, which soared from Tk 80 to Tk 120 per kilogram in less than two weeks. Similarly, prices of almost all varieties of rice are on the rise even after a good harvest. Edible oil offers another example of price manipulation through syndication. Its price has been repeatedly increased under the pretext of exchange rate volatility and rising international prices. However, global edible oil prices have witnessed a significant drop and the dollar rate has remained stable. Despite this, the cartels of local refiners who dominate the market continue to raise prices, highlighting the lack of effective market oversight and the unchecked influence of powerful business groups.  When prices fall in the international market but remain stubbornly high in the local market, it raises serious questions about the effectiveness of market surveillance and regulatory enforcement.

As things stand, market price in Bangladesh does not follow the laws of supply and demand, the fundamental principles of economics. Here middlemen play a dominant and deceitful role through hoarding and price manipulation. It has been widely discussed that while farmers are not getting a fair price and in some cases failing to recoup the production cost of their produce, middlemen are making an exorbitant profit through market manipulation and price syndication. This vicious cycle of exploitation not only discourages domestic production but also exacerbates the economic vulnerability of low- and middle-income consumers and farmers alike.  Economists have, therefore, rightly emphasised the need for strengthening the government's market monitoring mechanisms and curb malpractices at every stage of the supply chain.

Bangladesh Bank data on inflation also underscores that tackling inflation now requires more than monetary restraint. As noted economist Dr. Zahid Hussain argued a coordinated policy approach must address deep-rooted inefficiencies within the domestic supply chain to restore market stability and protect consumers. Strengthening transport and storage infrastructure, ensuring timely market intervention and curbing manipulation by vested interests are essential. Without such urgent and effective measures, inflation will continue to bite ordinary citizens, eroding their purchasing power and exacerbating their financial hardship.