Taming inflation should be govt’s key attention: CPD

Curbing inflation should be the centre of policy attention of the government at present, says the Centre for Policy Dialogue (CPD) in its independent review of Bangladesh’s development (IRBD).

“Considering its more adverse impact on the vulnerable and marginalised groups, all available policy tools should be utilised to control food inflation, including exempting duties and taxes on essential commodities both at domestic and import levels,” said the CPD in the report disclosed at a programme on Sunday.

The think-tank also said extending social safety net programmes and raising income tax exemption levels have also been considered by the government to support people to survive the critical time.

The CPD titled this year’s IRBD report: Skyrocketing prices amid stable inflation?

The report says the struggle of the poor and low-income group that began with the outbreak of the Covid-19 pandemic in early 2020 is now worsened by the unabated rise in the prices of essentials.

These people are still grappling with their limited budgets as the pressure of price hikes continues to mount.

The CPD, a private think tank, has been implementing the programme on Macroeconomic Performance Analysis through its flagship programme, i.e. IRBD, which originated from the idea of producing a home-grown perspective on Bangladesh’s economic performance, on an ongoing basis.

Lead contributions in this year’s report were: Dr Fahmida Khatun, executive director; Prof Mustafizur Rahman, distinguished fellow; Dr Khondaker Golam Moazzem, research director; and Towfiqul Islam Khan, senior research fellow.

Following are the key observations of CPD on inflation:

In Bangladesh, there is a tendency to blame external factors for high prices even if certain commodities do not have any connections with global demand.

As the country imports a few important commodities, higher prices of those will be passed onto the consumers. Unfortunately, such a pass-through is reflected only in the case of a price hike.

The 12-month average food and non-food inflation rates have fluctuated in a cyclical pattern over the past ten years

Increases in food inflation were generally accompanied by decreases in non-food inflation, so the overall general inflation rate has remained largely stable in the short-term

In Bangladesh, nominal household income increased by 7.86% per year on average and real household income increased by 0.16% per year on average between 2010 and 2016.

The food expenditure as a share of income decreased from 53% in 2010 to 46% in 2016.

The expenditure on food as a share of total consumption expenditure decreased from 55% in 2010 to 48% in 2016

However, the weights used for food in the calculation of CPI are significantly higher than the share of food expenditure in either income or consumption expenditure.

Thus, the consumption basket used for calculating overall general inflation was created in 2005 and does not reflect the current consumption pattern of consumers or the actual prices in the market in 2022.

A litre of milk in Dhaka is now more expensive than a litre of milk in Ostrava, Czech Republic or Malaga, Spain!

Onions in Dhaka are now more expensive than in Belgrade, Serbia or Baku, Azerbaijan!

The need for strong market intelligence is critical.

Unscrupulous market players have always been active to take advantage of difficult periods, by stockpiling and creating artificial crises in the market.

Efficient market management through close monitoring and supervision will be critical to keeping the commodity prices under control during Ramadan and beyond.

The volume of sale of essential commodities through the open market system (OMS) should be increased.

The distribution of these commodities must be managed effectively and without any corruption, so that the eligible people have access to these items at low prices.

The government should provide direct cash support to the poor, enhance social protection for low-income families, and extend stimulus to the small businesses for their survival during difficult times.

The core objectives of the IRBDs are to provide the stakeholders with perspectives on both strategic and policy issues and current developments. The idea is to provide a civil society report card on the performance of key macroeconomic parameters that would be distinct from the exercises carried out by donors and the government.