Twelve-month average non-food inflation rises to 11.45 percent in 2012
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Falling rice prices pull down inflation
The twelve-month average inflation fell by two percentage points in 2012 over the previous year and stood at 8.74 percent, mainly due to a drop in rice prices.
Food inflation came down by 5.40 percentage points in 2012 but non-food inflation rose by 4.62 percentage points, said Bangladesh Bureau of Statistics.
The prices of coarse rice plummeted by 7 percent to Tk 32 a kg on December 31, 2012 compared to the same day a year ago, according to Trading Corporation of Bangladesh (TCB).
Though the prices of other food items such as flour, fish and vegetables marked a rise in 2012, the rate of the hike was lower than that in 2011, resulting in a fall in the overall inflation, BBS Director General Golam Mostafa Kamal said yesterday.
Kamal credited the slide in inflation to the government.
Food inflation in 2012 was 7.43 percent, down from 12.83 percent a year ago, while non-food inflation soared to 11.45 percent from 6.83 percent in 2011, according to BBS.
Zaid Bakht, research director of Bangladesh Institute of Development Studies (BIDS), said the prices of rice were low as paddy production increased.
He also said the government’s food stocks were sufficient and helped contain expectation-driven price hike of food.
A recent report of the Centre for Policy Dialogue said, in the Bangladesh context, the prices of rice control around one-fourth of the overall price index.
Thus there is little surprise that the falling rice prices put an impact on the food and overall inflation, the think tank said.
The prices of coarse rice were stable at Tk 28 to Tk 29 per kg in the domestic market in the second half last year, according to TCB data.
The CPD report also said comfortable food stocks of the government also transmitted a positive signal to the market which helped to stabilise the food grain’s price.
As on December 30, 2012, the public food grain stocks were at 14 lakh tonnes and were expected to remain at a comfortable zone in the near future, the report added.
World Bank’s senior economist Zahid Hussain said the overall inflation rate in 2012 has been lower due entirely to a significant decline in food inflation.
“This reflects the favourable impact of good agricultural harvests.”
The increase in average non-food inflation in 2012 appears to have been primarily underpinned by strong remittance growth (nearly 22 percent), which boosted aggregate demand, Hussain said.
Cost push factors such as around 14 percent depreciation of the exchange rate during 2012 and administered price adjustments also played some role, he added.
The decrease in non-food inflation on a year-on-year basis in December 2012 indicates that the demand effect of remittances is probably wearing out, Hussain said.
However, on the rise in non-food inflation, Zaid Bakht of the BIDS said it was due to a hike in energy prices.
Bakht said a hike in energy prices puts both direct and indirect impacts on the cost of living, which also fuels non-food inflation.
Bangladesh Bank has been following a tight monetary policy, which has led to lower imports. A fall in import created pressures on non-food inflation amid a supply shortage.
A BB official said remittance receipts were more than $14 billion last year, which is also a cause of higher non-food inflation.
The government again increased fuel prices last week, and the electricity prices will also be adjusted. These will create further pressures on the price level both directly and indirectly.
The CPD said the government’ target of bringing down inflation to 7.5 percent in the current fiscal year is unlikely to be achieved though inflation fell in December last year.
However, according to BBS data, the overall inflation on a point-to-point basis rose by 0.28 percentage point in December and stood at 7.69 percent.
In December, food inflation went up by 0.88 percentage point and stood at 7.33 percent and non-food inflation fell by 0.87 percentage point and reached 8.43 percent.
Source: The Daily Star
