Policy paradoxes hinder inflation combat

Government's inflation-battling vows may prove hollow in the near future as some of its latest decisions have triggered price spikes of some key commodities, officials and economists say.

They point out policy-action paradoxes to substantiate their observations. They say the interim government, on the one hand, gives top priority to controlling inflation in its key documents like budgetary proposals for the FY'26 and the central bank's monetary policy statement (MPS).

On the other hand, it has been taking measures like the latest 33-percent tariff hike of gas for industrial usages and price spikes of edible oils by Tk 14 a liter.

The analysts take it as contradictory to the government policies avowedly aimed at economic advances, investment attraction and market management.

Expressing their fear over cascading effects of the decisions, they have said the upward price adjustments of gas and edible oils would contribute to worsening the inflationary burden further as the decisions come at a time when prices of key necessaries like onions, rice, vegetables and fishes have shown an upturn. The gas price hike in particular has all the potential to discourage investment, domestic and foreign.

As found in the capital city's kitchen markets, edible-oil prices have increased by Tk 14 a litre, while medium and finer-quality rice saw a further hike of Tk 5.0-6.0 a kilogram in a week.

Onion prices, stagnant for two months, rose to Tk 55-65 a kg on Wednesday-a sharp increase by Tk 10-15 a kg in just two days.

Rice and vegetable prices have also skyrocketed, enhancing pains of the limited-income groups, according to market observers.

The Commerce Ministry Tuesday approved the recent price increase of edible oils by refiners, despite initially terming the move illegal. Earlier, on April 13, refiners had raised prices without the ministry's consent.

In December, the National Board of Revenue (NBR) had waived VAT on edible oils, which helped reduce prices to Tk 173-175 per litre from Tk 190-200. However, the exemption expired on March 31.

"Despite a recommendation from the Trade and Tariff Commission (TTC) for extending the VAT waiver until June 30, the NBR did not take any action," a TTC official said.

Seeking anonymity, a BB official says the interim government's upward- price-adjustment decisions come at a time when the central bank has been battling hard with continuation of its contractionary monetary-policy stance to keep inflationary pressure below 8.0 per cent by June next.

"With such unexpected developments, it would be very difficult for the Bangladesh Bank (BB) to achieve the goal. I think all of our inflation-containing efforts would go in vain if such price-fueling decisions continue," says the central banker.

The BB official feels the interim government probably goes for price adjustment following pressure from the IMF (International Monetary Fund) condition to raise revenue through squeezing subsidies.

"If the government applies the same strategy in terms of power and water tariffs in the coming months, it will be devastating," the official adds on a note of alarm.

SM Nazer Hossain, Vice President of the Consumers Association of Bangladesh (CAB), appears highly critical of what he terms "contradictory" policies.

"On the one hand, the government claims to control inflation, while on the other, it raises gas prices and imposes VAT on import-dependent products," he says.

He warns that the rising costs of essentials like rice, onions, potatoes, and vegetables-which hold significant weight in the Consumer Price Index (CPI)-would severely impact low-income households in the coming months.

A noted economist, Professor M. A. Taslim, says the issue of inflation needs to be analysed in two aspects - external and internal fronts.

In external matter, he says, the price of imported products will have to be increased if their prices go up on the international market. The local source of inflation mainly depends on supply chain and demand.

Mr Taslim, Professor of Economics, Independent University Bangladesh, notes that the interim government has been talking about austerity to lessen its spending, which is a good sign. "But domestically-produced goods often follow the price trend of imported ones. So, we would probably see imported inflationary pressure in the coming days."

Former lead economist of World Bank's Dhaka Office Dr Zahid Hussain points out that the interim government has been voicing for tightening the upcoming budget but the figures that come out in media reports are showing opposite pictures.

He feels the interim government has very little option but to go for fulfilling the IMF condition in securing their funding as part of the $4.70- billion lending package for stabilising the country's macroeconomic situation.

If the government does not cut subsidy amid poor revenue collection, the IMF could halt release of remaining tranches of the loans and other Bretton Woods institutions may follow them in terms of providing budgetary supports, the economist told The Financial Express.

"If it happens, it will dampen image of the country globally that interim government does not want, but the economy will feel pain in short term because of the price adjustment," he added.

A static price trend in January, February and March had helped reduce food inflation to under 9.0 per cent for the first time in 18 months, as per Bangladesh Bureau of Statistics (BBS) data, which recorded year-on-year inflation at 8.93 per cent in March.

The Bangladesh Investment Development Authority (BIDA) that only recently organised an investment summit has called for reversing the gas tariff hike decision.

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