Supply chain break, floods, mismanagement lead to inflation spike

The Covid-19 pandemic has taken a heavy toll on the economy and rendered people jobless, curbing their spending capacity – which all pushed the inflation up.

Low-income people particularly those living in rural areas are bearing the brunt of it more than their peers in urban areas.

According to the Bangladesh Bureau of Statistics (BBS), inflation rose to 6.44% in October, the highest in the last six financial years. Earlier, the average inflation in the fiscal 2014-15 was 6.41%.

Economists say supply disruptions, prolonged floods and a lack of government control over the rice market have spiked general inflation.

In the wake of floods, the overall inflation in the villages has gone up, while in urban areas, it has gone down because of people's migration from city to village being affected by the pandemic.

An October report of the BBS on pandemic's impact on income revealed that households' incomes had fallen by more than 20%, thereby reducing their expenses by more than 6%.

Economists and former lead economist of the World Bank (Dhaka office) Dr Zahid Hussain thinks that the increase in the price of rice has a big role in pushing the inflation up.

According to the daily market price of Trading Corporation of Bangladesh (TCB), coarse rice sold at Tk45 per kg in mid-September but its price reached a maximum of Tk50 by the end of October.

The economist told The Business Standard as a result of Covid-19, the income of many people in the city has decreased and those who used to eat fine rice are now banking on coarse rice. As a result, the price of coarse rice has gone up due to its increased demand. In addition, rice market syndicates may have raised the prices of rice for gaining extra profit on the pretext of floods and pandemic.

Zahid suggested not only market monitoring but also identification and punishment of those involved in the syndicate to keep the prices of goods within buying capacity.

He is hopeful that the price will be stabilised when rice during Aman season hits the market.

In this context, the agricultural economist and former director general of Bangladesh Institute of Development Studies (BIDS) Kazi Sahabuddin said rice is the staple food for the poor and they buy it by spending half their income.

So, they are in trouble because of the increase in rice price, he said, adding that traders might hike its price apprehending floods that would likely damage Aman paddy.

A review of October data showed that food inflation rose to 7.34% from 7%. Earlier, the average food inflation in 2017-18 was 7.13%.

Although food inflation has increased, the non-food index of inflation has decreased. Non-food inflation was 5.92% in October last year, down from 5% last month. It was 5.12% in September.

In the context of rising food inflation, Zahid Hussain said food inflation has risen due to supply shortages and floods.

On the other hand, due to decline in income due to Corona, consumers are not going for unnecessary purchases without daily necessities. As a result, non-food inflation has come down, he added.     

Kazi Sahabuddin thinks that the rise in rice and onion prices has shot up food inflation.

Meanwhile, in October, inflation in rural areas was higher than that in urban areas. Food inflation in urban areas was 6.48% and in rural areas 7.73%.

Bangladesh Institute of International Strategic Studies (BIISS) Research Director Mahfuz Kabir attributed the prolonged flood to the rising inflation in rural areas.

He told The Business Standard that the reason for lower inflation in cities compared to that in rural areas is reverse migration.

In other words, people used to come to cities from villages. Many have returned to their villages due to reduced income and loss of employment hit by Corona. This has left an impact on inflation, he observed.

A joint survey report released by the Power and Participation Research Center (PPRC) and the BRAC Institute of Governance and Development (BIGD) in August said about 18% of city dwellers have left the capital in the wake of corona. On the other hand, 9% have left the port city Chattogram.

However, BIISS Mahfuz Karib is optimistic about the economy turning around in the new normal situation.

The rate at which remittance is increasing will hike the consumption expenditure of people in rural areas which will have a big positive impact on the economy, he said.