Most of the countries have been able to bring down their inflation apart from some countries like Pakistan, Sri Lanka or Argentina that are still in a dire condition. Inflation in India is now below 5 per cent, the lowest in the past 18 months.
Inflation is also coming down in countries like the US or China. Other countries are also taming inflation by undertaking various initiatives. However, Bangladesh sees no respite yet as the current inflation persists above 9 per cent.
People are grappling to make ends meet due to high inflation. The government insists the income of the people has increased along with the wages in the last one year. Per capita income in terms of taka also increased. But this happened only on paper. People are facing financial hardship while many are borrowing to meet family expenses. Some are drawing from their savings. High inflation is basically exhausting people’s income.
Amid this, the budget for the new fiscal 2023-24 will be placed on 1 June. People expect that the new budget will have initiatives to reduce inflation. The government is considering expanding the tax-free income threshold. It will bring a little relief in income tax, but the price of essentials will not go back to the way it was before.
Again, the inflation target for the next fiscal has been set at 6 per cent. But there has been no fresh social safety net programme in the country. The number of beneficiaries in old programmes will increase slightly while the allowance will also increase marginally. There is doubt as to how much respite it would eventually bring to the people. Informed persons feel that reducing inflation will be the main challenge for the finance minister in the new budget.
Abdullah Al Mamun works in the accounting department of a garment factory in Diyabari area of Uttara. He runs a family of four with a salary of 32,000 taka. Even a year ago, he could cover all his expenses including house rent, food and groceries, and school fees. It has become difficult now. In the past one year, the price of daily necessities, travel, education—everything has gone up. His salary increased by only 5,000 taka to 37,000 taka in January. But costs have multiplied much more.
Abdullah Al Mamun told Prothom Alo, "Earlier I could somehow meet expenses. Household expenses have increased by 25-30 per cent in the past one year. But my salary did not increase at that rate. People like us don't have savings. So we have to take loans to meet family expenses. I home schooled my children last year instead of sending them to school.”
Most of the families are running like this in the country.
People have to face financial constraints while buying all kinds of food and other items for a year. If the price of food including rice, lentils, oil, sugar, onion, fish and meat increases, this hardship will exacerbate and the burden of inflation will be crushing. The price of oil, soap, cosmetics, clothing, educational materials, transportation—everything shot up this time. As a result, low-income and limited-income people have to pay extra for almost everything to run their families or have to cut corners.
Planning minister MA Mannan told Prothom Alo, “Inflation has increased a lot in the last few months, while wages are growing slowly compared to that. But the good news is that inflation did not increase last month. This trend should be maintained. It has been planned to increase the salary and allowances of the government officials in coordination with the inflation rate. Now if the private sector also follows it, the income of the people will increase, the pressure of inflation will be mitigated to some extent. My aim is to bring down inflation to 7-8 per cent in the next couple of months.”
The planning minister believes, the market should be kept free to keep the prices of goods fixed. The supply must be maintained. Rice production increased this year. There is sufficient stock of rice in warehouses and farmers' stocks. This will ease the pressure in future.
Income growth below inflation for over a year
Despite soaring prices, purchasing capacity remains stable if the income is high, even if the prices go up. Simply put, if inflation is 8 per cent and the rate of income growth is higher than this, the consumers can purchase at higher prices.
But the income growth in the country has been below the inflation for a year. According to the Bangladesh Bureau of Statistics (BBS), wages have grown at a lower rate than inflation every month since May last year. For instance, the inflation was 7.42 per cent in May last year. The wage growth rate was 6.38 percent in that month. Inflation rose to 9.5 per cent in the following 11 months whereas the wage growth could not exceed 7 per cent. The rate of wage growth was 7.23 per cent against inflation of 9.24 per cent in April.
Income generally grows faster than inflation. This is the first time in a decade that income climbed slowly compared to inflation growth at a stretch. According to BBS, about 86 per cent of people in the country work in the informal sector. The number of such working people is about 60 million. Most of them are wage earners. This section of people are worst affected by inflation.
The former chief economist of World Bank's Dhaka office Zahid Hossain told Prothom Alo that the wage growth has been below inflation for a year. This wage rate is determined by 145 low-skilled occupations of the poor and lower middle class. This shows how hard it hit this section of people. It has been observed that wages have increased at the lowest pace in the garments and construction sectors in the last one year. All in all, their real income has dropped.
Zahid Hossain also said that in the first quarter of this year (January-March), according to BBS, employment has declined in the three sectors - agriculture, industry and services. On the one hand income has decreased, employment fell on the other. Daily costs have soared. In general, the sufferings of low income people surged.
Inflation did not fall below 8.5 per cent in 9 months
A rise in commodity prices leads to inflation. People have to spend more than before to purchase goods or services. The government organisation Trading Corporation of Bangladesh (TCB) estimates that the price of various types of rice went up by 4.5 to 7 per cent in the last one year. Buying rice accounts for 25 per cent of household expenses. Besides, the price of flour has increased by 21 per cent, onion by 72-86 per cent, anchor lentil by 2 per cent, local chilli by 95 per cent, turmeric by 19 per cent, sugar by 62 per cent, salt by 18 per cent, and egg price by 23 per cent. The price of fish and meat increased from 15 to 34 per cent. On the other hand, price of non-food items such as notebooks, pens, clothing, oil, soap—almost everything has gone up. Transport costs shot up as well.
In August last year, the prices of all types of fuel including octane and petrol were suddenly increased by 33 to 52 per cent, highest in 11 years. After that, the price of gas and electricity was also increased several times. Again, raw materials, intermediate goods had to be imported at higher prices due to inflating dollar price.
Due to rise in the price of fuel oil, inflation jumped to 9.52 per cent in August last year. Then it kept fluctuating throughout the year. But in the last 9 months it did not fall below 8.5 per cent. Inflation was 9.24 per cent in April last.
Why we trail behind
When asked why we are unable to reduce inflation, Ahsan H Mansur, executive director of Policy Research Institute (PRI), told Prothom Alo, "The attitude of the government towards the existing high inflation is it is caused by external factors including the Ukraine war, and they are not to blame for this." . This is partially true, but surely not the whole truth. The supply system within the country has also been disrupted. Have we been able to provide gas and electricity as per the demand of various sectors including factories, agriculture? No matter how much price the power authorities increase now, the revenue comes in taka while they have to pay various types of bills in dollar. The existing dollar crisis cannot be met with remittances and export earnings.”
He further said, “We dragged on the dollar crunch. If the dollar-crisis is not alleviated, the supply-crisis of the commodities will not be eased. Reserves will continue to decline. Reserves have fallen by $12 billion in the last 12 months. A fall in reserves over the next few months will result in lack of confidence among traders, worsening the crisis. Therefore, instead of waiting for IMF in July, the currency exchange rate should be made market-based.” We should look for more options to maintain austerity in the budget.
*This report, originally published in Prothom Alo print edition in Bangla, has been rewritten in English by Farjana Liakat