Why are we experiencing higher inflation in Bangladesh and around the globe?

Inflation today The onset of the Russian invasion of Ukraine in February this year further exacerbated the inflation we inherited from the initial years of the Covid-19 pandemic.

Ever since February, the world markets are stumbling, food prices are soaring and inflation has become ever-present across the world. Bangladesh is no exception.

Moreover, the events that are unfolding in Sri Lanka raise more cause for concern. In this edition, we look at inflation throughout the ages, its basic parameters, causes and how it is impacting Bangladeshis at large. Inflation, in short, is a broad increase in prices.Inflation occurs if there is a broad increase in the prices of goods and services, not just of individual items; it means, you can buy less for Tk100 today than you could yesterday. In other words, inflation reduces the value of the currency over time.

Consumer demand worldwide rose sharply whereas global supply chain was yet to recover from fallout of the Covid-19

- Dr Zahid Hussain, Former Lead Economist, The World Bank

During the post-pandemic recovery phase, consumer demand worldwide rose sharply whereas the global supply chain was yet to recover from the fallout of the Covid-19 pandemic. The production and supply of increased goods and services required an increased supply of inputs. Consequently, the price of imported inputs like natural gas, oil, semiconductor etc rose globally." 

In the case of Bangladesh, however, the increased cost of imports alone cannot account for the rising inflation. In May 2022, the year-on-year inflation was 7.4%, even though the prices for electricity, natural gas and other imported inputs were still not adjusted; awaiting approval from the government. 

Indeed, the higher costs for imported food items such as wheat, soybean etc (due to the Russia-Ukraine war) had a direct impact on the domestic market as the government has no price control mechanism in place for these goods. But that too cannot account for all the inflation. It has to do a lot with the release of pent-up consumer demand, i.e., the desire of consumers to fulfil the demands they could not meet during the pandemic. 

There are two sides to the inflation story: The supply side and the demand side

- Dr Kazi Iqbal, Senior Research Fellow, Bangladesh Institute of Development Studies

There are two sides to the inflation story: the supply side and the demand side. Because of the lockdown, consumer demand globally was pent up. As soon as restrictions were lifted, demands spiked and prices rose as a consequence. On the supply side, the obvious answer is the Russian invasion of Ukraine which disrupted the global supply chain, making the price of inputs costlier and giving rise to inflationary pressure.

On top of that, the expansionary fiscal policy undertaken by the government along with the rise in the cost of imports means that Bangladesh is going to experience the simultaneous effects of both demand-pull and cost-push inflation.

What do the consumers say?

First of all, prices of all things have gone up in the last two years. But my income has remained the same. Back then the prices were reasonable. For example, 5 litres of Soyabean oil cost Tk600 something, nowadays this is close to Tk1,000. This is just an example. Prices of all things are excessively high. In some cases, the current day price is twice as high as before. We are in a difficult situation. It has become tough to meet all ends. If it continues to get higher, then we will be in serious trouble.

Md Sultan, 33

Assistant Manager, Deep Clinic

Recently, I have started a grocery shop myself even though I work in a textile company. It is very difficult to run my family from only one source of income. We have reduced our cost in non-essential and luxury products. Fortunately, we did not compromise on necessary products or food items. 

Jahidur Rahman, 58

Product Manager, JK Textiles

I have to cut costs in many respects. Before the coronavirus, I was in a large apartment. But since then I have shifted to a smaller apartment. So, money is saved here. But the overall expenditure increased almost 30-40% in my case. When the price of onion went up, we almost stopped buying. And now as the oil price is high, we try to use as little oil as possible. Overall, we have to be very careful when grocery shopping. A few years ago, I did not have to think much about it.

Dipok Kumar Biswas, 38

Support Specialist, Ergo Phar Ltd.

Living in Dhaka city is already expensive. And the inflation is making it much worse. But we have to adapt to it. My husband and I both work in the corporate sector. Over the years, while the salary increased, it was not inflation-adjusted. As a result, it directly impacted our savings. In terms of grocery shopping, not much changed. But if things continue to get worse then we will definitely have to cut corners.

Afrin Khondokar, 30 

Media Relation Officer, City Group