Inflation in reality does not tally with the target

All the government calculations regarding inflation are changing now. Despite the fear that inflation in the country may increase due to the global crisis, the government has counted a reduced average of 5.6 per cent for inflation in the budget of the current financial year. 

But the reality is in stark contrast.

The inflation was around 7.5 per cent in the first month of the current fiscal. The data of the following month is yet to be disclosed. But a draft of the Bangladesh Bureau of Statistics (BBS) mentioned the inflation to have been nearly 10 per cent in August, according to sources concerned.

The finance ministry, in a policy statement during the announcement of the latest budget, said global inflation will rise, so will local inflation. But they set an average target of inflation at 5.6 per cent, which was 5.8 per cent in the previous fiscal.  

According to the ministry sources, no initiative has been taken yet to revise the inflation target. However, the inflation and other indicators of the macro economy may be revised by December.  

The policy statement noted regarding inflation that there is a fear of a major shock in the global supply chain, which may slow down the global growth and swell inflation simultaneously. It may hamper the post-pandemic economic recovery. 

The Russian invasion on Ukraine and the subsequent sanctions on Russia have put the global fuel supply in jeopardy. Russia supplies about 10 per cent of the energy consumed by the entire globe, where 17 per cent are natural gas and 12 per cent oil. 

A rise in oil and gas prices will push up the production cost in the industries and slash the real income of consumers. The world has already witnessed record inflation and Bangladesh has also taken a heat.  

Salim Raihan, executive director of South Asian Network on Economic Modeling (SANEM), a non-government research firm, said, “I saw the inflation target set during the budget and said it is not in line with reality.”

Inflation has been high since June and it is gradually rising. Setting an average inflation target of 5.5 per cent is by no means realistic as there will be high inflation in the next few months, he said, suggesting a revision in the target.

Inflation was under control in the last five fiscal years. The targets have been achieved in three out of the last five years while the real figures were very close to the targets in the remaining two years.  

In 2017-18, the inflation target was 5.5 per cent while the average inflation in the fiscal year was 5.4 per cent. The target for the next financial year was 5.6 per cent and the actual figure stood at 5.8 per cent at the end of the fiscal. 

The actual inflation rate matched with the target of 5.5 per cent in the fiscal year 2019-20. The achievement was 5.7 per cent in the following year while the inflation target was 5.4 per cent. 

The inflation target was initially set at 5.6 per cent in the last fiscal and it was revised later to 5.8 per cent considering the global situation. Inflation remained within the target at the end of the year.

Inflation control has been a success of the government in the last few years. However, some economists have called the quality of inflation data into question. They claimed that the actual inflationary pressure is much higher than the rate the BBS releases every month. 

The prices of goods have been on an uptick for several reasons – high price in the global market, increased fuel prices in local and international markets, and high import bills due to rising price of the greenback. 

The prices of all types of consumer goods have increased in the market following an unprecedented spike in fuel prices. Also, the non-food commodities have been on a rising trend due to increased transportation costs. All these issues are expected to impact the inflation rate. 

But the BBS has not yet officially released the inflation data for August. This is why it is still unknown how much the fuel price hike impacted the inflation.

Bangladesh posted a nine-year high inflation of 7.56 per cent in June this year. The highest ever rise of 7.85 per cent was recorded in July, 2013. 

Controlling inflation has now emerged as a new challenge for the economy as it has been rising consistently for the last five months. The inflation rate crossed the threshold of 6 per cent in February and has been rising since then.