The government has set an inflation target of 5.5 per cent for the next fiscal year although the prices of basic commodities are sitting at elevated levels for higher commodities prices globally amid lingering supply chain disruptions and the Russia-Ukraine war.
And economists say the goal for FY2022-23 might not be achieved and containing inflation will be a major challenge for the government in the coming months as a result.
The government is set to miss the revised inflation target of 5.7 per cent for the fiscal year ending in June this year. It had set a 5.3 per cent inflation target at the start of the fiscal year.
Zaid Bakht, a former research director of the Bangladesh Institute of Development Studies (BIDS), said: “It will be very difficult to attain the inflation rate of 5.7 per cent because of the hike in raw material prices and imported items.”
“It is expected that the goods whose prices have not increased yet will also go up due to the price spike of the imported goods in the international markets.”
Inflation has been increasing gradually since October, rising from 5.4 per cent in the month to 5.81 per cent in April on average, according to data from the Bangladesh Bureau of Statistics (BBS).
Point-to-point, inflation shot up to 6.29 per cent in April, the highest in 18 months. It was 6.22 per cent in March.
In a report recently, the finance ministry said inflationary pressures might be noticed primarily on the price level of basic commodities in the local markets because of the price hike of commodities globally.
However, if food production, including that of rice, remains unchanged next fiscal year like a year ago, the prices of basic commodities will also decline and it will not have any adverse impact on inflation.
The ministry also assumed that inflation will remain at a tolerable level because of the continuation of the usual production of agriculture and manufacturing goods and their normal marketing.
Under such assumptions, the government is setting a 5.5 per cent inflation target for FY23.
However, analysts say the country may face even higher inflation in near future because of the higher prices of imported goods and other consumable items owing to the higher US dollar exchange rate alongside the higher global prices.
The exchange rate of the US dollar was hovering around Tk 86 before the Russian-Ukraine war. It rose to as high as Tk 95 per USD for importers in recent days.
The International Monetary Fund is also projecting that global inflation will remain elevated for much longer.
“The imported inflation will grow as importers have to spend more money to buy goods from the international markets,” said Mustfizur Rahman, a distinguished fellow of the Centre for Policy Dialogue, at a discussion in Dhaka.
“When importers sell the imported goods in the local markets, obviously they will sell at higher prices. This will send inflation higher.”
A gradual weakening of the taka against the American greenback had been suggested over the last many years, but the central bank did not pay heed until recently.
“The situation has turned so bad that now allopathic medicine is not working. Surgical operations are needed to save the economy,” Rahman said.
Bakht said the price of goods will go up in the local markets for the devaluation of the local currency.
“Rice production might maintain normalcy but the prices of wheat-based items like bread and biscuits will increase in the domestic markets.”
Binayak Sen, director-general of the BIDS, says Bangladesh’s higher inflation is largely owing to global inflation, which is sitting at its highest since 2008.
He hopes that global inflation will not be at a higher level for a longer period.
“So, the poor and low-income people should be given support so that they can afford essential goods before prices go down,” he said, adding that the government has the fiscal space to extend the support.
