In the shadows of 'syndicates'

From an individual standpoint, the year 2023 has been one of raging prices. 

The 9% inflation rate was troubling on its own. Coupled with a decade-high food inflation of 12.56%, registered in October, the problem was only compounded.

While the food inflation was initially chalked down to the global spike in prices, provoked by the Russia-Ukraine war running havoc on supply chains immediately after the Covid-19 shock, it soon became clear that there were internal factors at play. 

A new bogeyman was soon identified as the year neared an end.

An uncontrollable syndicate was identified as the key culprit. Greedy, dishonest traders were behind the debacle.

Soon, raids began. The government promised a hard line approach, with prices of key ingredients being fixed. 

On paper, it was a slew of remedies. The reality, on the other hand, is that things have stayed the same, although inflation as a whole had cooled by November. 

Problem is, once prices go up, there is little room for it to come down. It's the sticky-down idea, but pumped full of steroids in Bangladesh's context. 

Inflation outlook, for next year, also seems uncertain, but there are hopes.

Meanwhile, experts and policy-makers have long demanded measures to rein in inflation. But what exactly is being done in that regard is still unclear. 

Price caps haven't been implemented on the market level. The political impasse, resulting in blockades and hartals, hasn't helped either.

Supply chain disruptions have only emboldened the so-called syndicate to hike up prices further. 

With elections to dominate the first weeks of headlines of 2024, the supply chain looks even shakier.

So what's on the menu this year?

Making money costlier

In October of this year, the Bangladesh Bank increased its key policy rate by 75 basis points to 7.25%, making it the highest hike in the last decade.

The aim was to make money costlier, hence dampening demand. The move banked on demand's inverse relationship with price. 

By the end of October, it was clear the play hadn't worked. 

Inflation rose to 9.93% from 9.63% in the previous month, rendering the move ineffective in taming inflation.  

Bank officials blamed the failure on the "slow pass-through mechanism", adding it would take six months to have an impact due to the introduction of a new formula, measured with six-month average treasury bill rates, known as the SMART rate.

When dealing with lending rates, the idea is to curb the demand for money. 

The less loans given out, the less there will be to spend.

But what if spending isn't the only issue here?

More money, more problems?

If more money was a big factor in driving inflation, then surely it had to do with more jobs being created and people having more disposable income?

According to available data, however, this was not the case. 

Data from Statista shows that disposable income – that which we spend –  has been falling since 2022 when it stood at $27.89. 

By December of 2023, this had fallen to $22.96. 

In 2024, disposable income is expected to fall again to $20.92. 

The numbers show that people then have less money to spend, hence a lower demand. 

The next question would be whether the fall in disposable income can be offset by a growth in employment numbers. 

This again has not been the case throughout the year. 

According to May's Labour Force Survey, the number of unemployed individuals in Bangladesh increased to 2.59 million in the first quarter of 2023, up from 2.32 million in the last quarter of 2022. 

The survey showed that the unemployment rate was 3.51%.

In 2024, the employment rate is also not expected to shoot up by a lot.

According to the budget documents obtained by The Business Standard, allocations to ministries which mostly work for job creation and skill development have decreased significantly in FY24. 

Of them, the budgetary allocation to the employment ministry fell by 24% compared to the revised budget for FY23, while that to the youth ministry dropped by 22% and the industries ministry by 32%, according to the budget documents. 

Only the overseas employment ministry saw a 39% increase in budget allocation.

"We expected major initiatives for job creation and increased allocations for skill development in the budget, but it did not happen," Shams Mahmud, former president of the DCCI, told The Business Standard in a reaction to the budget in June. 

Stuck with syndicates

After a number of measures to cool inflation yielded next to no results, a frustrated State Minister for Industries Kamal Ahmed Majumder in April said syndicates had taken hold of both the economy and the market, causing small entrepreneurs to shut their businesses while driving up product prices and creating market instability.

In November, speaking about the spiralling prices of eggs, AHM Shafiquzzaman, director general of the Directorate of National Consumers Right Protection, lamented that the government was helpless as all the control remained with the so-called syndicate.

There is a syndicate in the egg market which has the power of raising the price of eggs dramatically overnight, and if the syndicate cannot be broken, he told a seminar.

He also said some giant companies controlled the poultry business at all stages, from hatching chicks, to making poultry feed, to producing meat and egg. 

This supposed infiltration of big companies disrupting the supply chain was also addressed by Md Jashim Uddin, president of Federation of Bangladesh Chambers of Commerce and Industries (FBCCI). 

At an event in June, as prices of essentials continued to skyrocket, Jashim said he would talk to the highest echelons of the government to stop one from entering into all kinds of businesses only because they have money.

"Will I get into all types of businesses only because I have money? I will talk about it at the highest level of the government so no one can get involved in all kinds of businesses," he said.

"At one time, rice used to come from small mills. We ate that and we had not had any problems. Now, it is our job to inform the government about these things in the interest of keeping the market stable," he noted. 

Talking about the hoarding of rice, the FBCCI president said the law regarding permissible limit of stockpiling rice for millers was amended in 2020, but how much a miller can legally hoard still remained at an amount determined on the basis of the year 2011. 

In a December event, the Newspaper Owners Association of Bangladesh (NOAB) also expressed belief that syndicates were no longer restricted to a role in the marketplace, but had infiltrated the political system, even using their power to influence government policy.

So far, however, little has been done to unmask the faces behind such syndicates. 

Perhaps a silver lining?

It's not all doom and gloom when it comes to our pantry next year. 

Projections from different credit rating agencies, financial institutions and think tanks have predicted a lowering of inflation as global crises ease. 

The Mastercard Economics Institute (MEI), for instance, has forecasted the consumer price inflation in Bangladesh to be at 7.3% next year, much lower than the government's 12-month average of 9.42% in November this year. 

"Globally, 2024 should be marked by easing inflation pressures," said the MEI in its "Economic Outlook 2024: Striking a balance between prices and priorities" released on 11 December.

Meanwhile, it forecast global inflation to come down to 4.9% in 2024, from 6% this year and way above the pre-pandemic level of 2.7%. 

It's also important to note that Bangladesh's headline inflation fell to a seven-month low of 9.49% in November, according to Bangladesh Bureau of Statistics (BBS).

This marked a notable decline from October's 9.93%. The previous low of 9.24% was recorded in April before a surge to 9.94% in May.

In a year-on-year comparison, the headline inflation rate in November 2022 was 8.85%. 

According to BBS data, both food and non-food inflation declined in November. 

Perhaps there will be even more cooling of prices. But as seen in 2023, it all depends on a number of factors – both within and beyond our reach.