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A former lead economist of the World Bank (WB)'s Dhaka office, Dr Zahid Hussain recently said what Bangladesh economy is experiencing at the moment is a form of stagflation. Stagflation in developed economies like in the UK is characterized by high inflation, low growth and rising unemployment. The example of the UK has been drawn because it is in fact in Britain where the term, 'stagflation', originated and was perhaps coined and popularized by a British politician named Jain Macleod in 1965 when his country was experiencing low productivity, excessive government spending and stubborn trade deficit. But this phenomenon of stagnated economic growth, rising unemployment and high inflation (demonstrated by rising prices) and all showing up at the same time is rare in developed economies. It goes against the traditional economic theory, since the policy tools used to combat, for instance, inflation by raising interest rates can worsen unemployment situation, while measures to stimulate growth, say, by making borrowing cheaper can drive up inflation thereby creating a vicious circle. Or in other words, stagflation is a kind of economic crisis that has no remedy so far as existing economic theories go.
However, in a developing economy like Bangladesh, stagflation may happen when growth remains below target and inflation rises unabated. This economic syndrome of surging inflation and declining economic growth has characterized the country's economy since the days of Covid-19 pandemic. Though the GDP growth rate at present is approximately between 3.7 per cent and 3.8 per cent, the inflation rate remains as projected by IMF at the single digit figure of approximately 8.5 per cent. However, according to other estimates, it may be within the 8 per cent and 10 per cent range. Combination of the high inflation and falling growth is a clear sign that Bangladesh is going through stagflation, economists hold. Now, it is up to the economist to define and categorize the state of the country's economy according various economic theories and models. But for the average person, it makes no difference to their lives unless steps are taken to relieve them of their suffering caused mainly by the rising costs of living, while their incomes are remaining unchanged. The central bank, the Bangladesh Bank (BB), has long been applying the same old policy tool of controlling money supply keeping the bank interest high and thus suppressing demand in order to tame inflation. It appears, in a developing economy like Bangladesh, the orthodox theory that declining growth and high inflation are mutually exclusive does not apply. And that is why the BB has seen some success, at least on paper, in pressing down the inflation rate from its previous double digit figure to its present single digit one. Unfortunately, the calculated rate of lower inflation has hardly helped the average person whose earning has not increased. Worse, the prices of essentials have remained volatile thanks to the roles of rent-seekers and syndicates. And the non-market force of syndicates cannot be combated by any existing policy tool of the central bank.
To be frank, to fight non-market forces, use of outright government intervention would be required. However, the method of government intervention through conducting occasional raids on the kitchen markets and penalizing some retailers by mobile courts for charging higher prices for essential commodities than fixed by the government has largely remained an ineffective instrument. The retailers return to their old practice of charging higher prices as soon as the forces of district administration or the teams led by Directorate of National Consumer Rights Protection (DNCRP) leave the scene. And one cannot also blame the retailers for their errant behaviour as it is the cartel of corporates and wholesalers who actually have the last say about the essentials prices. Only a government with strong political will may control them. And that is required even for restoring the domestic as well as foreign direct investors' confidence in the economy. In that case, perhaps, we would have to wait until the next elected government assumes office to see any change in this regard.