Inflation eases by 1.17 percentage point in Aug, but still remains above 10%

TBS Infographic

The country's inflation dropped to 10.49% in August from the record 11.66% in July, marking a 1.17 percentage point decline – the largest decline since 2013, according to data from the Bangladesh Bureau of Statistics unveiled on Sunday (8 September).

The fall was primarily driven by the decrease in prices of essential foods, the data shows.

The significant drop is especially noteworthy compared to the second-largest fall of 0.92 percentage point seen in November 2020. Back then, inflation fell from 6.44% in October 2020 to 5.52% in November that year.

The country's general inflation in July, the month marked by quota reform movement leading to blockades and curfews, soared to a record high of 11.66%.

The current drop is expected to bring some relief to prices, but it still remains in double-digits.

Although the food inflation fell from 14.10% to 11.35%, non-food inflation rose from 9.68% to 9.74%.

Speaking to The Business Standard, economist Zahid Hussain said general inflation had fallen largely due to the fall in food inflation.

"This is good news, but we can't get too complacent for two reasons. One, the fall in food inflation in both urban and rural areas in August I think is down to the fall in extortion in markets in the first few weeks of the month. But this may be returning," he said, adding there was a rising price trend being observed later on.

"The second is the impact of the flood which can't be seen in the August data. Data is usually collected at different points of the month. So, we can observe its impact in next month's data," he said.

Zahid went on to say, "The food inflation is still in double digits. Whether it will remain sustainable is uncertain.

"Non-food inflation has decreased in urban areas but has increased in rural areas. In August, urban people had limited opportunities to shop. After the fall of the Awami League government on 5 August, various groups were on the streets with demands and grievances, and this is still ongoing.

"As a result, people were not in the mindset to go out and shop. However, this did not affect rural areas as much. In rural areas, inflation in non-food items such as housing, water, electricity, education, and restaurants has increased."

Zahid Hussain said, "The impact of contractionary monetary policy is expected to be more definite on non-food inflation. However, the decrease in urban non-food inflation cannot be attributed solely to the tightening of monetary policy, as its effects on inflation are not yet visible. This is because although the tightening of monetary policy was previously discussed, it had not been implemented until recently. Now, the policy rate has been raised, and liquidity support is being provided on a limited scale. Nevertheless, the tightening of monetary policy needs to continue until its effects become visible."

Contractionary monetary policy not enough to cut inflation

The economist said tightening monetary policy alone is not sufficient to reduce inflation. "This is because there are two additional issues. Recently, import controls have been in place, particularly with the waiver of LC margins for production-based imports. There has been some improvement in the foreign exchange situation, but this alone is not enough."

The improvement in the foreign exchange situation needs to be made sustainable, Zahid said.

The economist further said, "Double-digit food inflation is very hard on the general public. Inflation may be decreasing, but prices haven't come down. People want the prices to decrease, not just the rate of increase. Currently, the rate of increase has slowed, but the real opportunity lies in better market management. There is now a chance to manage the market properly, free from the influence of political figures or business elites. 

"If extortion in major wholesale and retail markets can be stopped, and large businesses are prevented from price gouging or manipulating the market, then food inflation will decrease. Ultimately, low-income and poor people will feel relief only if inflation becomes negative. Therefore, visible improvements in these two areas are necessary for proper market management."

BBS Director General Mohammed Mizanur Rahman explained the decrease in inflation by stating that the supply chain was disrupted in July, but improved in August. 

"As a result, overall inflation decreased in August. However, inflation still remains in double digits," he said.

The interim government, which came to power on 8 August, has made combating inflation a priority. 

Students in the capital began kitchen market monitoring from 9 August to keep prices in check.

The Ministry of Commerce on 1 September asked the National Board of Revenue to withdraw import duties on onion, potato and eggs in a bid to keep the goods' prices stable in the market amid production disruption due to the ongoing flood situation.

According to BBS data, inflation in rural areas in August was 10.95%, down from 11.89% in the previous month. In rural areas, food inflation decreased from 14.06% to 11.44% in August. However, non-food inflation in rural areas increased from 9.84% to 10.45%.

In urban areas, inflation in August was 10.01%, down from 11.27% in July. During the same period, food inflation in urban areas fell from 14.22% to 11.24%, and non-food inflation decreased slightly from 9.43% to 9.20%.

The wage growth rate in August increased to 7.96%, up from 7.93% in July. The wage growth has remained below inflation for the past 31 months.