Country’s real food inflation reaches 15%: BIDS
Binayak Sen said the inflation was mainly fueled by rises in the cost of fish and poultry feed
Actual food inflation in Bangladesh stands at 15%, contrasting sharply with the 9.87% figure reported by the Bangladesh Bureau of Statistics for March, said Binayak Sen, director general of the Bangladesh Institute of Development Studies (BIDS).
"The BBS published inflation data for March, indicating a food inflation rate of 9.87%. However, conducting a field-level survey, we discovered that the actual inflation rate stood at 15%, significantly higher than the BBS figure," he said during a book launch event at the BIDS auditorium today (9 April).
The unveiled book, "Stabilizing the Macroeconomy of Bangladesh", has been authored by Sadiq Ahmed, vice chairman of the Policy Research Institute of Bangladesh (PRI).
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Inflation is mainly propelled by rises in the prices of fish and poultry feed, Binayak Sen said, suggesting that the government could potentially manage it by adjusting the existing tariff rates.
Regarding the recent policy rate hike by the central bank, he said that simply raising the interest rate would not be sufficient to control inflation; there is a need for reform in tax policy as well.
Binayak Sen also said that following the Bangladesh Bank's decision to raise the US dollar rate from Tk110 to Tk117, there appears to be no rationale for additional incentives in the export sector, given the appreciable surge in the value of the dollar.
Some experts who were present on the occasion expressed concern regarding the recent hikes in both interest rates and exchange rates by the central bank, questioning how these measures would effectively address the challenge of high inflation.
In response, Habibur Rahman, deputy governor of the Bangladesh Bank, said that the interest rate hike would increase the cost of funds, potentially aiding in the effort to reduce inflation.
He added that the exchange rate hike would contribute to balancing supply and demand, thereby aiding in reserve management development. Additionally, the exchange rate adjustment would benefit remitters, leading to expectations of increased remittance inflows in the near future.
Habibur Rahman added that if implemented successfully, this could lead to a reduction in consumer-level inflation.
Mashiur Rahman, economic affairs advisor to the prime minister, highlighted the longstanding inconsistency in the currency exchange rate, which has been non-market-based for an extended period.
Noting that the central bank has recently taken an initiative for a transition to a market-based system, he said regular adjustments to the currency exchange rate in alignment with market dynamics is crucial.
Mashiur Rahman said the government could deliberate on whether or not to discontinue export incentives. If these incentives were to persist, they could be allocated based on an assessment of the product's performance in the export sector.
Rahman proposed that the government identify promising export sectors through thorough evaluation at the highest level and allocate incentives accordingly.
Author Sadiq Ahmed, in a presentation on his book, said Bangladesh is facing unprecedented macroeconomic imbalances that have accumulated over the past three years. However, the government places the blame for these difficulties on external factors.
He said many of the sources of macroeconomic difficulties have been long simmering. These include problems in the banking sector that have been creeping in since 2012.
The weakness in the management of the exchange rate and ineffective tax policy intensified macroeconomic difficulties. Controlled interest rates have contributed to excess demand for credit and a slowdown in deposit mobilisation, said the author.
Due to such poor policy management, adverse pressure on the macroeconomy has been building up slowly, even though GDP growth accelerated, owing mainly to the contributions of the garments sector, remittance and agricultural sector, he said.
Sadiq Ahmed also suggested the government develop five themes for macroeconomic stability — coordinated policy responses, managing inflation, stable exchange rate, fiscal policy management and banking sector reforms.
