Inflation crawling up
Bangladesh’s average inflation crept up four basis points in 2019, which saw fluctuations throughout the year and a skyrocketing of the price of onion, an essential cooking ingredient.
At the end of 2019, inflation stood at 5.59 percent, up from 5.55 percent a year earlier, according to data released yesterday by the Bangladesh Bureau of Statistics (BBS).
Full-year inflation averaged 5.7 percent in 2017 and 5.55 percent in 2016.
While there have been fluctuations, overall 2019 has turned out to be a year of rising inflation driven both by rise in food and non-food inflation, said Zahid Hussain, former lead economist of the World Bank’s Dhaka office.
“This happened despite bumper rice crops, accelerating GDP growth as reported officially and generally slow monetary and private sector credit growth.”
In December last year, general inflation fell 30 basis points to 5.75 percent on the back of a steep fall in food inflation.
Food inflation declined 53 basis points to 5.88 percent, aided by fall in the prices of vegetables such as brinjal, bean, carrot, cucumber, tomato, cauliflower and bottle gourd, and spices such as onion and ginger.
However, onion prices surged as much as eight times since India, the main source of the tuber, imposed a ban on its export on September 15 in the face of a supply shortage as a result of crop damage.
At the start of 2019, onion sold for Tk 20-25 a kg but it rose as high as Tk 250 at one point in November, the Consumers Association of Bangladesh (CAB) said yesterday.
But this has not had major impact on the overall inflation, since onion makes up only 1.1 percent to 1.6 percent of monthly food expenditure of households, according to Nazneen Ahmed and Md Mainul Hoque, senior research fellow and research fellow respectively at the Bangladesh Institute of Development Studies.
“It is a happy news that inflation went down in December,” Planning Minister MA Mannan told reporters while releasing the data at the auditorium of the National Economic Council in Dhaka.
Non-food inflation edged up eight basis points to 5.55 percent, BBS data showed.
Rural inflation went down from 6.01 percent in November to 5.76 percent in December. Urban inflation declined to 5.73 percent from 6.12 percent a month earlier. Sharp increases in prices of items like onions cannot explain the inflation trends because in early 2019 the country also experienced a collapse in rice prices, which occupy a much higher weight in the consumer basket, Hussain said.
With import growth lagging well behind GDP growth, the increase in cost of imports due to exchange rate depreciation can also not explain why the headline inflation in most months remained above 5.5 percent and non-food inflation closer to 6 percent.
“Clearly, the economy was overheating with aggregate demand boosted by sharp increases in public sector borrowing and remittances. Supply chain disruptions such as strikes by transport operators may also have contributed to price spikes at different times of the year,” Hussain said.
The cost of living rose 5.50 percent year-on-year and the prices of goods and service went up by 6.08 percent last year, the CAB said.
The government has targeted a 5.5 percent inflation rate for this fiscal year. It was able to contain it at 5.48 percent in fiscal 2018-19, which is comfortably below the target of 5.6 percent.
