Inflation has become a significant economic challenge for Bangladesh, impacting both consumers and businesses alike. As the country navigates through the post-pandemic recovery period, global supply chain disruptions, rising fuel prices, and domestic political regime shifts have all contributed to surging inflation.

For businesses, this environment presents both challenges and opportunities. Business confidence in tackling inflation is critical as it determines how they plan, invest and operate under pressure, particularly those who are politically involved with the ousted Awami League regime. The current state of inflation hinges on business sentiment, and the strategies businesses are adopting to navigate this challenging landscape.

Bangladesh has experienced persistent inflationary pressures in recent years. According to official data, the inflation rate in July 2024 averaged above 11 percent, significantly higher than the previous year's average. This increase has been driven primarily by food price inflation, exacerbated by supply chain disruptions, rising global commodity prices and adverse weather conditions affecting agriculture. Moreover, the depreciation of the Bangladeshi Taka against the US dollar has led to higher import costs, contributing further to inflation.

Business confidence in Bangladesh has been somewhat mixed amid the regime changes. On the one hand, there is cautious optimism among businesses due to the new interim government's vision to create a level playing field for all. However, it will be difficult to restore discipline in the market overnight without the support from businessmen who were political aides of the previous regime and have captured most of the import-export and other businesses.

It is important for the Interim government and the Bangladesh Bank to be actively working to contain inflation and restore business confidence. The monetary policy has been tightened, with the central bank raising interest rates and adopting measures to control money supply growth. While these steps are aimed at curbing inflation, they also pose challenges for businesses by increasing borrowing costs and limiting access to credit. It is time to review the monetary policy and exchange rate policy stance. On the fiscal side, the government has introduced subsidies and targeted support for essential goods, particularly food items, to ease the burden on consumers and stabilize prices.

However, these measures have limitations, and businesses remain wary of potential tax hikes or further austerity measures that could be introduced to manage fiscal deficits.

Additionally, the government is focusing on improving supply chains and promoting local production to reduce dependency on imports. This is aligned with its broader strategy to build resilience in the economy by encouraging self-sufficiency, particularly in sectors like agriculture and manufacturing.

Despite the inflationary challenges, businesses in Bangladesh need to explore various strategies to manage costs and maintain profitability. One key approach has been cost optimization. Companies need to revaluate their supply chains, seek more cost-effective suppliers and implement energy-saving technologies to reduce operational costs. Price adjustments have also become a common strategy. Businesses are gradually passing on higher costs to consumers, though this is done cautiously to avoid significant demand contraction. Retailers, for example, are offering smaller packaging sizes at lower prices to maintain affordability for consumers while preserving margins.

Business confidence is crucial for economic stability, especially during inflationary periods. High levels of confidence encourage investment, job creation and innovation, which are vital for sustaining growth. Conversely, if confidence wanes, businesses may cut back on investment, leading to slower economic activity and potentially triggering a recession. This should be the main concern for now. There are curtails among big business houses, particularly those involved in importing edible oil, LNG, and many other essentials. It is now important to increase competition in import markets and give a positive signal to the market that businesses will get due support from the government if they play fairly and don't breach market fundamentals.

Finally, maintaining business confidence hinges on the government's ability to manage inflation effectively and create a stable operating environment. Clear and consistent communication from policymakers, along with targeted support measures for vulnerable sectors, can help bolster confidence. Equally important is the role of industry associations and business leaders in fostering collaboration and sharing best practices to navigate inflationary challenges.

The author is a research director at the Bangladesh Institute of Development Studies (BIDS). He can be reached at [email protected]