Shirin Sharmin :
At any stage of economy, inflation is a serious concern, and the trade-off between inflation and economic growth has been at the forefront of policy discussions. During the Covid-19 pandemic, inflation was somewhat under control in most countries. However, inflation now is more obvious globally. People all over the world are feeling the pinch of dreading price spirals. In Bangladesh, though inflation has been increasing gradually since last January, especially the price increase in the last three months is quite unbearable. Prices of almost all essential commodities have increased and the common people find it difficult to handle their daily expenses, let alone saving money for the crucial days that lie ahead.
The Russia-Ukraine crisis is sometimes accused of the resurgence of inflation, though it started during the Covid-19 outbreak as a consequence of supply chain and manufacturing interruptions. Additionally, when the Covid-19 scenario improved, demand increased globally pushing up the cost of necessities. Again, the Bangladesh government has provided an expansionary budget with a massive deficit for FY 2022-2023 which would cause inflation to surge inflation even further. Economists worry that it will be a strenuous task for the government to contain inflation since it is expected to be greater in the upcoming days.
The massive rise in gas and oil prices due to the Russia-Ukraine conflict was another significant factor in the surge in inflation. Experts claim that risk of a disruption in fuel supplies has not yet been fully priced in and may be ready to rise even further. The supply chain was disrupted as a consequence of restrictions being imposed on Russia, and Saudi Arabia refused to increase oil production at this crisis moment. It is quite challenging to forecast the direction that the world economy and markets will take. High prices are being passed over to consumers contributing to the increased cost of virtually all goods and services further fuelling inflation.
The grim consequences of rising inflation are manifold and Bangladesh will not be able to escape from this. Food prices have increased to a record high in the last few months with the poor and marginalized populations suffering the most. Russia and Ukraine supply roughly thirty percent of the wheat demand in the world. Till date, Bangladesh also imported wheat mainly from Russia, Ukraine, and India. Due to the Russia-Ukraine war, food grain, and fertilizer import from these countries is somewhat stalled. In addition to this, during July and August, an unprecedented flood engulfed parts of Bangladesh hampering crop production, and prices of food products shop up.
If internal inflation keeps going up, Bangladesh’s global competitiveness would deteriorate and our exportable goods will fall in value in the world market. Local vendors may now again see work order cancellations and deferred payments, as it did at the time of Covid-19. Bangladesh’s main source of foreign currency RMG export decreased in May as a result of supply chain bottlenecks and a decline in demand in western nations suffering from the crisis brought on by increasing inflation. The slowdown in exports and the drop in remittance will put further strain on the nation’s foreign exchange reserves.
To address the macroeconomic issues, the government has already taken several fiscal and policy measures like a cut in public expenditure, increased duties and LC margin to dampen non-essential imports, prioritizing import substitution etc. For possible reduction in energy consumption and fuel savings, the government implemented area-based load shedding, the temporary shutdown of diesel-fired power plants, closure of all shopping centers and markets by 8 pm, and changing office hours. Although people from all walks of life support the government’s efforts to tighten its belt, proper implementation and strong oversight are now urgently required.
To tackle the recent economic issues, the government should be more cautious, and must take cost-cutting measures public and private expenditures. Under the current conditions, managing inflation rather than GDP growth should be the main focus of macroeconomic management. To tame inflation more effectively, both monetary and fiscal policies are needed. All public spending right now should be directed towards getting through the current economic crisis and general welfare should come first. Rather than solely relying on the government, we all should work together to get out of this tough time.
(Shirin Sharmin, a researcher and Asst. Professor at Bangladesh Institute of Governance and Management)
