Inflation lowest in 43 months

Inflation decelerated 16 basis points month-on-month to 5.45 percent in May -- the lowest in 43 months.

May's figure takes the 11-month mean inflation to 5.96 percent, which is below the full-year target of 6.2 percent.

“I hope inflation will be within the target by the end of June,” said Planning Minister AHM Mustafa Kamal, while releasing the data yesterday.

Inflation declined as the prices of commodities and food fell both internationally and domestically, he said.

Boro production was bumper and crop production was also good as well -- and they helped in lowering inflation.

Last month, food inflation dropped 3 basis points to 3.81 percent and non-food inflation 42 basis points to 8.34 percent on the back of the decline in commodity prices, according to the Bangladesh Bureau of Statistics.

Thanks to the decline in prices of commodities, inflation did not increase much even if the new payscale has been implemented.

Inflation, however, might go up this month and the next due to Eid purchasing pressure but the impact would be small, Kamal said.

In his budget speech, Finance Minister AMA Muhith said satisfactory agricultural production, reduction of fuel price in international market and prudent management of macroeconomics have helped in lowering inflation.

Though the government has recently lowered the prices of various petroleum products, the price of diesel, a big part of inflation, saw a token cut.

If the diesel price is not lowered substantially, it will not have much impact on non-food inflation, according to observers.

The finance minister in his budget speech said there is a likelihood that the prices of commodities including oil will continue to decline in the international market in the coming years.

Further downward adjustment of fuel prices is likely to continue.

Side by side, the prospects of persistent agricultural growth and improvement in domestic distribution system will help contain food inflation at a tolerable level, Muhith said.

“In addition, in terms of macroeconomic management, we will ensure continued harmonisation of fiscal and monetary policies.”

Muhith set the inflation target at 5.8 percent for the upcoming fiscal year.

If achieved, this would be the lowest average inflation in a decade.

The inflation goal is in line with what was suggested by economists and development partners.

In the latest report on Bangladesh, the World Bank said the central bank could be more ambitious in lowering the inflation target to below 6 percent.

However, both the WB and the International Monetary Fund recently said inflation is expected to edge up from fiscal 2015-16 through to fiscal 2017-18 on account of higher public sector wages and a one-off effect of the introduction of the new VAT law.

High inflation hits the poorest the hardest, particularly those with fixed income.