June inflation highest in 8 months

Inflation spurted to 5.64 per cent in June, the highest in eight months, reflecting the disruptions faced by the supply chain and the rise in the cost of living, official figures showed yesterday.

In the last month of the fiscal year, the overall inflation rose by 38 basis points compared to May's figure of 5.26 per cent, according to the Bangladesh Bureau of Statistics (BBS).

Food inflation surged 58 basis points to 5.45 per cent as the price of staple rice, and other essentials showed an upward trend. Non-food inflation was up eight basis points at 5.94 per cent.

"The impact of economic disruptions in supply sides was clearly noticeable in these inflationary trends," said Zahid Hussain, a former lead economist of the World Bank's Dhaka office.

The average inflation in the just-concluded fiscal year was 5.56 per cent, overshooting the government's target of 5.4 per cent.

In FY'21, the weighted-average inflation was, however, nine basis points lower than the previous year's 5.65 per cent.

A recent report of the Bangladesh Bank said the second wave of coronavirus infections triggered a new strict lockdown from the middle of April, which may affect the future trajectory of inflation.

According to the government policy, transports were allowed to take passengers in reduced numbers but with a higher fare during the relaxed lockdown, which pushed up the overall cost of transportation and communication.

"Eventually, the inflation of the sector increased sharply," said the BB.

The report said both food inflation and non-food inflation experienced volatile trajectories during the pandemic.

The inflation dynamics of disaggregated non-food inflation shows increased inflation of transport and communication and health expenses.

Despite a bumper yield of Boro paddy, the largest crop in Bangladesh, in the just-concluded season, rice prices are going up, putting pressure on the low-income groups. Many people are suffering from income losses for the lockdown.

Coarse rice sold for Tk 45.86 per kg in Dhaka in June, up 2 per cent from a month ago, data from the Department of Agriculture Marketing showed. The June price of the grain was the highest since October 2017.

Besides, the price of edible oil increased in the last four to five months as it became expensive in the global market.

Clothing and footwear experienced decreasing inflation due to a fall in demand as people prioritised food intake over non-food consumption, the BB report said. 

However, gross rent, fuel and lighting inflation rose slightly after the start of Covid-19 despite the fall in oil prices globally as the fuel price was not adjusted in Bangladesh.

Regulations aimed at stabilising prices in the crisis-sensitive economic sectors such as medical services are crucial to minimising unexpected inflation volatility during any crisis similar to the current one, the BB said. 

"In addition, maintaining self-sufficiency in major food items and creating adequate buffer food stocks and sufficient foreign reserves for food imports are also important to subdue the adverse price effects of the pandemic."

According to Zahid Hussain, the food inflation drastically increased in the urban area in the last quarter of the immediate past fiscal year.

The domestic demand also increased, fueling the food price, in keeping with the hike in the global market, he said.

Average food inflation rose to a three-year high of 5.73 per cent in the last fiscal year. Average non-food inflation came down to 5.29 per cent in FY21, the lowest in three years.

The government has set a 5.3 per cent inflation target for the current fiscal year.