Poster in May 15, 2024 13:14:26

Food inflation reached double digits during peak paddy harvesting season

Food inflation reached double digits during peak paddy harvesting season

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In April, headline food inflation rose to double-digits again after a four-month gap, raising food security risks for the majority of people. The growth rate of overall monthly inflation eased marginally to 9.74 percent from 9.81 in March, but food inflation remained high at 10.22 percent.

Economists found double-digit food inflation in both rural and urban areas during the country’s peak rice harvesting period quite unnatural. They observed that price hikes of food items like chicken, beef, lentils, sugar, and spices during Eid-ul-Fitr in the past month in the absence of effective price monitoring might add an extra push to the persistently high food inflation.

Former World Bank Dhaka office chief economist Zahid Hussain noted that the underlying reasons for high inflation over the past 22 months had not changed much. The ineffective interest rate, shortage of dollars, lack of price monitoring, and low imports have been identified as reasons for the high inflation since August 2022, when the government hiked fuel oil prices by more than 50 percent.

Besides, the government enhanced the prices of gas and electricity to appease the International Monetary Fund under the current $4.7 billion loan package. The price hikes of energy items in the local market have already secured a $1.1 billion loan from the IMF and another S1.15 billion from the same multilateral lender soon.

However, the domino effects of price hikes of energy items on manufacturing items, agricultural production, and transportation costs have resulted in an average monthly inflation of 9.02 percent in FY23, the highest since FY12, when the Bangladesh Bureau of Statistics recorded 10.21 percent inflation.

In the first 10 months of the outgoing FY24, monthly average inflation reached 9.73 percent, making low- and fixed-income people vulnerable to food insecurity and nutrition deficiency. Officially, 18 percent population lives in poverty, but around one-third of the population is said to be vulnerable to shocks like food price hikes, floods, and droughts.

The Executive Director of the South Asian Network on Economic Modeling, Selim Raihan, said that fixed and poor people were in untold misery because of persistent high inflation. He noted that the wage rate hike remained below inflation, meaning that they were either surviving the situation by borrowing or breaking savings. While inflation is punishing people, a certain quarter is benefiting, he added.

The BBS monthly update showed that double-digit food inflation was last recorded in November 2023, when food inflation was 10.76–10.86 in rural areas and 10.58 in urban areas. It showed that food inflation in urban areas reached 10.19 percent in April and 10.25 percent in rural areas during the same month, which demonstrated that rural people were facing more food insecurity.

Non-food inflation was recorded at 9.06 percent in rural areas, compared to 9.01 percent in urban areas in April. Zahid Hussain said that high inflation would persist in the coming months as the market-based interest rate announced recently by BB would require time to make an impact. 

Besides, the delayed impact of the market-based interest rate may also be affected due to the depreciation of the taka against US dollars by Tk 7, the highest in a single day in years, he said. The devaluation of local currency has apparently been made to convince the IMF to release the third tranche of its loan package worth around $1.15 billion by this or next month.

On May 8, an IMF mission projected that inflation in the outgoing FY24 would be 9.4 percent against the government target of 6.5 percent.

The IMF, however, projected the inflation rate to drop to 7.2 percent in FY25.

Source: Online/GFMM

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