Inflation declines drastically

Inflation fell 61 basis points to 5.35 per cent in May from a month earlier owing to a drastic fall in food prices caused by a collapse in demand because of the coronavirus pandemic.

This is the lowest general inflation rate in at least 23 months.

In April, general inflation stood at 5.96 per cent, according to a Bangladesh Burau of Statistics (BBS) report.  The BBS is expected to release the inflation figures for April and May today.

The general inflation was 5.63 per cent in May last year and 5.58 per cent in April last year.

Food inflation dropped 82 basis points to 5.09 per cent last month from 5.91 per cent in April.

Non-food inflation also fell, to 5.75 per cent, down 29 basis points from April's 6.04 per cent. 

Headline inflation has declined primarily due to a decline in food inflation. Non-food inflation was also lower in May 2020 relative to May 2019, said Zahid Hussain, a former lead economist of the World Bank's Dhaka office.

"This reaffirms what was already being speculated as coronavirus hit our economy in March."

The pandemic caused both a supply shock and a demand shock and it segmented markets within the economy because of disruption in transportation, he said.  

The supply shock pushed up inflation, particularly food prices in April, but the demand shock muted the rise subsequently, the economist said. 

General inflation in rural areas declined 43 basis points to 5.65 per cent in May from 6.08 per cent in April.

Food inflation went down 56 basis points to 5.61 per cent and non-food inflation fell 19 basis points to 5.73 per cent.

In urban areas, headline inflation came down drastically to 4.81 per cent, a decrease of 92 basis points from 5.73 per cent a month earlier.

Food inflation gave up 1.39 percentage points to 3.94 per cent and non-food inflation declined 41 basis points to 5.79 per cent.

The prices of rice, lentil, egg, vegetables, spices, onion and garlic fell in May compared to a month earlier, said officials of the BBS.

The average inflation was 5.61 per cent between June 2019 and May 2020, up from 5.48 per cent a year earlier, BBS data showed. 

The government has targeted a 5.5 per cent inflation rate this fiscal year. It was able to contain it at 5.48 per cent last fiscal year, which is comfortably below the target of 5.6 per cent.

Going forward, Hussain said inflationary pressure is likely to remain somewhat stable in the very near term as consumption demand remains depressed due to deep uncertainties about what is likely to happen. 

"Yet, policymakers should not let their guards down," he added.

In a report in late February -- before the first confirmed cases of the COVID-19 in Bangladesh were announced on March 8 -- the finance ministry said the crash in oil prices might help the country keep its current account deficit and inflation lower.