Domestic goods now major inflation drivers: BB report
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The influence of imported goods on inflation has decreased, while the impact of domestically produced goods has increased, according to a Bangladesh Bank report released Thursday.
In January this year, the influence of imported goods on inflation fell to 27.5% from 32.3% in the previous month, mainly because food imports became cheaper. At the same time, the impact of locally produced goods on inflation rose to 72.5% from 67.7% due to higher prices for both domestic and non-food items, said the quarterly report titled "Inflation Dynamics in Bangladesh January-March 2024".
It says from August 2022 on, the prices of fully or partially imported goods started to significantly impact inflation due to rising international prices. These goods, including items made with imported materials, comprised about one-third of overall inflation between July 2023 and March 2024.
However, though there is a slight drop in the contribution of import-concentrated items in March this year, the ongoing depreciation pressure of the taka may change this movement in the coming months, the report forecasts.
Fahmida Khatun, executive director of the Centre for Policy Dialogue, told The Business Standard that there was import-driven inflation pressure until the dollar rose several times from Tk85 to Tk110.
"That is, a major part of our inflation was due to rising import costs. The effect of rising commodity prices in the international market has also played a role here," she said.
However, the central bank did not increase the price of the dollar for several months after that. In the banking sector, the dollar was in a range, albeit on an uptrend. Due to these reasons, import-driven inflation may have decreased a little, added the economist.
Commenting that market distortion is one of the big reasons behind domestic items' inflation, Fahmida said, "In our country, due to the increase in international market prices, the price of imported products increases, but if the price decreases in the international market, it does not decrease here. Besides, there was no supply shock for our domestic products. I think there is inflation due to not monitoring the market properly."
Fahmida said there should be a study on how much the price is increasing or decreasing in the country's market as a result of the increase or decrease in international market prices.
The report says inflation has remained elevated at around 10% in the March quarter, with an almost similar contribution from food and non-food items. While food inflation is mostly driven by protein-based food items, spices, and other culinary essentials.
"About one-fourth of the non-food inflation growth was attributed to energy inflation, while restaurants, hotels, recreation prices, and health and personal care prices contributed each by approximately 10%. The contribution of perishable items to inflation emerged significantly in 2023 and remained steady during the first three months of 2024," it added.
Binayak Sen, director general of the Bangladesh Institute of Development Studies, told TBS, "Many imported raw materials are used in our domestic products. As a result, the rising cost of these raw materials and the increasing price of the dollar impact domestic items.
"For instance, imported soybeans or maize for poultry feed affect poultry chicken prices. Similarly, imported fuel used for various purposes, including transportation, raises costs, thereby increasing domestic inflation. We need an integrated study to understand the impact of imported items on inflation."
Wage growth highest in Rangpur, lowest in Sylhet
Among the overall division-wise wage growth rates in Bangladesh, Rangpur stands out with the highest wage growth rate since October 2023, according to the Bangladesh Bank report.
This may be due to uneven development activities, migration, natural calamities, and geographical challenges. However, there are signs that this growth is becoming similar to other divisions following various government initiatives, including the establishment of the export processing zones.
In January 2024, wage growth across all divisions was almost similar, with Sylhet experiencing the slowest growth.
Since April 2022, inflation has remained on a higher trajectory compared to wage rate growth, implying lower purchasing power for consumers and a subsequent fall in real income, it added.
The report stated that higher inflation is a challenge for the Bangladesh economy. Monetary and fiscal policies have prioritised the containment of inflationary pressure.
In addition to continuous increases in the monetary policy rate (repo rate) to reduce inflationary pressure, the Bangladesh Bank has stopped lending to the government by increasing reserve money. Furthermore, the government has implemented a variety of austerity measures to ensure effective fiscal management.
Looking ahead, all of the policy initiatives implemented by the central bank and the government aim to anchor inflation expectations. They are expected to have a positive impact on inflation outcomes in the coming months, according to the report.