Inflation inches down to 5.57pc | The Daily Star
12:00 AM, August 10, 2017 / LAST MODIFIED: 12:00 AM, August 10, 2017

Inflation inches down to 5.57pc

BBS moves back to monthly inflation reporting

Inflation declined for the first time in eight months in July thanks to a fall in prices of both food and non-food items.

Last month, the consumer price index fell 0.37 percentage points to 5.57 percent from a month earlier, according to figures released yesterday by the Bangladesh Bureau of Statistics.

Planning Minister AHM Mustafa Kamal disclosed the inflation figures after the meeting of the Executive Committee of the National Economic Council in his ministry.

The fall in inflation came as a surprise for a number of economists.

“Given the rise in rice price and the devaluation of the taka against dollar, which makes imports costlier, we had apprehended that inflation would go up,” said Towfiqul Islam Khan, a research fellow of the Centre for Policy Dialogue. 

The prices of many products, including soybean and sugar, have gone down internationally, but the rice prices have gone up, Kamal said.

In Bangladesh, rice, a staple food item, plays an important role in determining inflation. When asked how then inflation went down, the planning minister said: “The prices of rice go up in cities, not in villages.”

Yesterday, coarse rice price went up 37.50 percent from a year earlier to Tk 43-45 a kilogram, according to the Trading Corporation of Bangladesh, which tracks prices of several items in Dhaka city.

The prices of all other varieties of the staple went up between 12.62 percent and 17.39 percent in the last one year.

In May 2016, coarse rice price was Tk 26.5 a kg, which rose to Tk 47.30 in June. The price came down to Tk 43.50 a kg in July, according to the Food and Agriculture Organisation of the United Nations.

The UN agency said coarse rice prices rose to record highs in June, reflecting dwindling market availabilities following flood-induced losses to the 2017 main boro crop coupled with reduced production and imports in 2016.

Meanwhile, by making the inflation data available for the month of July, the state-run statistical agency has gone back to monthly release of the key economic indicator.

In July, inflation data was released in a quarterly format for the first time in the country's history, doing away with the global standard practice of releasing monthly data.

The move was much criticised by economists and analysts.

Zahid Hussain, lead economist of the World Bank's Dhaka office, welcomed the switch back to monthly release of inflation data. “We hope the BBS will maintain this release calendar in the days to come.”

The decline in food inflation most likely resulted from moderation in rice prices because of the 18 percentage points cut in duty on rice imports and the easing of letters of credit margin requirements, he said.

As a result, rice imports increased significantly in July, leading to a Tk 4-6 per kg decline in rice prices. 

In July, food inflation fell 0.56 percentage points to 6.95 percent -- the lowest in three months.

In the food domain, the prices of fish, meat, vegetable, fruits, spices, milk and milk-based food items increased in July.

“Post-Ramadan slowdown in consumer demand is likely to have contributed to the decline in non-food inflation,” Hussain added.

Non-food inflation declined 14 basis points to 3.53 percent in July, which was 3.67 percent a month earlier.

However, the cost of energy, house rent, health and transport went up in the non-food segment. 

Meanwhile, the average inflation of 5.44 percent recorded last fiscal year was lower than fiscal 2015-16's by 52 basis points as the prices of essential items at home and fuels and some other commodities in external markets maintained a cool trend.

Besides being a 13-year low, the average inflation in fiscal 2016-17 was within the government-set target of 5.8 percent.

But inflation started to creep up from December last year when the consumer price index stood at 5.03 percent. It went up every month until June.

In the latest monetary policy unveiled last month, the central bank said the food price uptrend caused by the flash flood in the last quarter of fiscal 2016-17 in the haor regions poses risks of inflation. 

The BB's fiscal 2017-18's monetary programme seeks to set a prudent, flexible course towards containing 12-month average CPI inflation within 5.5 percent.

According to the BB's latest inflation expectation survey, inflation is expected to be above 6 percent in June 2018.

The central bank's projection shows the average annual inflation for the first half of the fiscal year would be 5.5-5.9 percent. 

“Looking ahead, given the domestic inflation dynamics, food price developments and tapering base effects, some price pressures may emerge during fiscal 2017-18 and will need to be monitored and contained carefully,” said the monetary policy statement.

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