BRITISH economist Lionel Charles Robbins said in the 80s, ‘If the average inflation of a country exceeds 4.2 per cent, then there is no more economy in that country.’ Inflation was 4.6 per cent in the last fiscal year of the Bangladesh Nationalist Party-led four-party coalition government. Inflation started increasing after the authoritarian leader Sheikh Hasina came to power. According to the Economic Survey 2024, inflation jumped to 6.78 per cent in the fiscal year 2012-13, which is shown at 9.67 per cent in the fiscal year 2024. These statistics were shown by Bangladesh Bureau of Statistics. But how accurate is the BBS’s analysis?
Recently, the report of the White Paper Preparation Committee on Economic Affairs said that the actual inflation rate is 15 to 17 per cent. Inflation in April 2024 was 15; in May it was 15.3; in June it was 15; in July it was 18.1; in August it was 16.2 and in September it was 15.3 per cent. According to the BBS, the inflation rate was lower at that time. In addition, studies by private research institutions Centre for Policy Dialogue and South Asian Network on Economic Modelling (SANEM) have also shown that the inflation rate is higher than the data published by the BBS.
The Awami League government had published inflation data up to June before the fall of the government in August 2024. In June 2024, general inflation was 9.81 per cent and food inflation was 10.39 per cent. The wage growth rate was 7.95 per cent. When the inflation data for July 2024 was published by the interim government, it was seen that the rate in the general sector increased by a leap to 11.66 per cent and the food inflation rate increased to 14.10 per cent, while the wage growth rate decreased to 7.93 per cent. In September 2024, general inflation decreased slightly to 9.92 per cent. But in the food sector, this rate was double digits, i.e., 10.40 per cent. Since then, this rate has increased further to double digits. In October 2024, it was 10.87 in the general sector, 12.66 in the food sector, and in November, it increased further to 11.38 in the general sector and 13.80 in the food sector.
Meanwhile, in early January, VAT (value added tax) was imposed on about a hundred products. Although VAT was later withdrawn on some products, such as pharmaceuticals, mobile phone SIM/RIM cards, hotels and restaurants, the withdrawal will not be of any use to the lower-middle class. And the biggest thing is that after imposing this increased VAT, the prices of all products suddenly increased. The government will have to take short-term and long-term measures to control inflation. As a short-term measure, the government can set a price ceiling or price cap, which will help limit the cost for consumers and prevent price increases. Along with this, it will be necessary to monitor whether the sellers are selling the product or service at the prescribed price. At the same time, the government will have to take care that the price ceilings do not continue for too long or are not set too low. Because if the price ceilings are maintained for too long or set too low, it will cause problems in demand and supply and adversely affect the quality of the product.
As a short-term measure, the government can increase the place and scope of sale of goods through the Trading Corporation of Bangladesh. Currently, it is seen that TCBs usually sell goods for a fixed period of time at a specific place far away from the permanent market. Although a few families have benefitted from this, it does not have any impact on the market. But if TCBs were to sell their goods inside or in front of the permanent markets when they are open, it will have a huge impact on the prices of daily necessities in a fully competitive market. It is very natural that there will be pressure from various parties to implement this. But if the government could enforce it firmly, the public would be protected from the blow of inflation. Moreover, the import duty on daily necessities should be reduced in the short term to increase the supply of goods in the market.
The government can encourage various private, political, religious and social institutions to play a role in controlling inflation. If private, political, religious and social institutions take the necessary steps to provide products at fair prices within their respective areas, then the people of the country can be protected from the impact of inflation in a short time. Political parties have to play a leading role in this regard. Social institutions can reach the lower middle class at low prices through community buying like in other countries. The private, political, religious and social institutions that are already working at the government level should be recognised for their work, and others should be encouraged to do the same.
The government can adopt contractionary monetary policy as a long-term measure. Contractionary monetary policy is considered an effective way to control inflation these days. The aim of this policy is to reduce the money supply in an economy by increasing interest rates. It helps to slow down economic growth by increasing the cost of borrowing, making it more expensive for consumers and businesses to borrow. On the other hand, it slows down growth by increasing interest rates on government securities, which encourages investors to buy treasuries. The government can also control inflation through fiscal policy. According to Keynesian economists, demand-pull inflation occurs due to the excess of aggregate demand over aggregate supply. If the main trigger behind demand-pull inflation is government spending, then inflation should be controlled by reducing government spending or using government money wisely. In cases where demand increases due to increased personal spending, profit taxes should be imposed. This plays a role in reducing aggregate demand. Therefore, all kinds of initiatives should be taken to reduce inflation and keep it tolerable. In particular, initiatives must be taken to break the market syndicate. Due to the wide gap in income and expenditure, the lower and middle classes are no longer able to cope. Again, citing the British economist, there is no such thing as an economy if inflation exceeds 4.2 per cent. Yes, there is only one truth. The average inflation in the whole world is currently 2.6 per cent. In a rich country like the UK, it is 2.7 per cent. And in Bangladesh, it is close to 15 per cent. So high inflation shows how fragile the economy of Bangladesh is!
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ÌýAB Siddique is a journalist and columnist.
