October 3, 2024
DHAKA – Bangladesh’s inflation continued to ease for the second consecutive month in September as prices of both food and non-food items cooled off, according to the statistics bureau.
Still, the Consumer Price Index (CPI) has been hovering around 10 percent since March last year despite several interest rate hikes by the central bank.
In September, the CPI stood at 9.92 percent, down from 10.49 percent in August, according to data released by the Bangladesh Bureau of Statistics (BBS) yesterday.
In August, the CPI, a measure of changes in consumer prices for a basket of goods and commodities, dropped to 10.49 percent from 11.66 percent in July.
“The positive news is that inflation has declined for the second consecutive month,” said Zahid Hussain, a former lead economist of the World Bank’s Dhaka office. “The decline primarily reflects lower food inflation in both rural and urban markets.”
Drop in food inflation probably reflects marginally improved supply and cost conditions. The exchange rate has been stable and floods have receded, he said.
As the headline inflation is still close to 10 percent and non-food inflation in urban markets has increased, Hussain argued that the reduction in inflationary pressure is not solely due to policy tightening and that such measures may still be necessary.
Food prices in September grew at a slower rate of 10.4 percent compared to 11.36 percent in August, according to the BBS. Non-food inflation eased to 9.5 percent in that month from 9.74 percent in August.
The Bangladesh Bank in its quarterly report published yesterday hinted that it may maintain a contractionary monetary policy stance until there are clear signs of inflation easing.
To help curb inflation, the central bank last week raised the policy or repo rate, at which commercial banks borrow from the BB, by 50 basis points to 9.50 percent.
The BB said it is actively working to stabilise inflation while supporting productive economic sectors, despite the various macroeconomic uncertainties facing the economy.
The central bank also mentioned that disruptions in supply chains caused by the nationwide student movement and recent floods could potentially impact inflation in the coming months.
Given that inflationary pressures have become the country’s top economic concern, it is expected that the current interim government would continue to implement its strict fiscal policies through spending cuts and reduced budgetary support.
Meanwhile, the Asian Development Bank recently projected that inflation would reach double digits by the end of the current fiscal year due to supply-side disruptions and higher import amid the sharp depreciation of the local currency taka.
The Manila-based lender’s projection for inflation in fiscal year (FY) 2025 increased to 10.1 percent, which is 3.1 percentage points higher than its April estimate.
The previous Awami League government, which was ousted by a mass uprising on August 5, targeted to keep inflation at 6.5 percent this fiscal year after the price pressure hit 9.7 percent in FY24.
On September 30, the International Monetary Fund said that the country’s economic activity has slowed markedly while inflation remains at double-digit levels owing to the recent political turbulence and major floods.