If you regularly follow the kitchen market or find out about the prices of a neighborhood grocery store, you will likely get the obvious answer: The prices of a number of basic items are on the rise.
Daily market price data compiled by the state-owned Trading Corporation of Bangladesh (TCB) will give a clearer picture of what is happening in the market. The prices of rice, flour, edible oil, legumes and broiler chicken meat have increased over the past year.
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For products such as rice and chicken, domestic agriculture is the main source. For the rest, Bangladesh is very dependent on the international market, where the prices of raw materials are rising.
Oil prices have already crossed $ 80 a barrel for supply disruptions and recovery in demand following the coronavirus pandemic, Reuters reports.
The rebound in oil prices to a three-year high is exacerbated by an even larger rise in gas prices, which soared 300% and traded at nearly $ 200 a barrel due to supply shortages and low production of other fuels. , he added.
Aside from energy, the prices of agricultural and food commodities – wheat, soybean oil and palm oil – have soared over the past year on the international market.
It has fueled the price spike at the national level.
A slow depreciation of the taka against the US dollar increased import costs.
Thus, there is apprehension if higher inflation, which has already become a concern for many countries, knocks on the door.
Economists say Bangladesh still remains vulnerable to import-induced inflation due to its dependence on external markets for major commodities.
Inflation has accelerated around the world due to rising commodity costs, constraints on the supply of goods, stronger consumer demand as economies reopen, and prices rebounding from the economic downturns. declines during the pandemic in some sectors, the Economic Cooperation Organization said. and development (OECD) recently.
Prices in the group of major G20 economies will rise faster than before the pandemic for at least two years, the leading global agency has predicted.
In the United States, the cost of goods and services rose sharply in August and left the inflation rate at a 30-year high, according to financial data portal MarketWatch.
Eurozone inflation hit its highest level in 13 years in September as the bloc battles soaring energy costs.
In Bangladesh, oil and gas prices are administered. So much depends on whether the government will increase the prices of the two energy products.
And any increase in prices is likely to fuel inflation expectations and negatively affect prices.
Otherwise, the pressure on the public treasury will increase to subsidize the additional costs of oil and gas. The surge in imports can also put pressure on the balance of payments.
“Overall, macroeconomic stability is under pressure. A risk of macroeconomic stability is increasing,” said Zahid Hussain, former chief economist at the World Bank’s Dhaka office.
“There is already pressure on the exchange rate, and the cost of imports will increase if the Bangladesh Bank allows a large exchange rate depreciation and that could be inflationary.”
Since the start of the current fiscal year, the value of the US dollar has increased.
On July 5, the exchange rate was 84.80 Tk to one USD. Three months later, the value rose to 85.5 Tk, the Bangladesh Bank showed.
Former BB governor Atiur Rahman said Bangladesh has always been vulnerable to import-induced inflation.
“The exchange rate must remain stable. Otherwise, the increase in import costs will fuel inflation,” he said, adding that imports of luxury items should be discouraged.
In August, headline inflation rose 18 basis points to 5.54% due to rising demand and an abnormal rise in transport costs following the reopening of the economy following shutdowns induced by coronavirus, according to the Bangladesh Bureau of Statistics.
Non-food inflation was the main driver while food inflation also contributed to the rise.
Fahmida Khatun, executive director of the Center for Policy Dialogue, says economies around the world are trying to get back to normal.
“As demand is greater than supply, there is a backlog,” she added.
“As we depend on imports for a number of commodities, there will be import-induced inflation pressure.”
In fiscal year 2020-21, imports jumped 20 percent year-on-year to $ 65.59 billion. In July, overall imports rose 22% to $ 5.14 billion, according to BB data.
Fahmida Khatun believes that much will depend on national agricultural production, especially rice and the government’s supply and distribution of food grains.
“A smooth supply chain will also be important to contain price spikes.”
Selim Raihan, executive director of the South Asian Economic Modeling Network, says demand for imports will increase as the economy picks up its pace.
“And the pressure on the exchange rate will increase.”
“Despite the resumption of economic activities, the incomes of many people have not yet returned to pre-pandemic levels. So the increase in prices will affect them.”