Inflation drops to a 17-month low

Inflation slipped below 7 percent for the first time since January 2013 on the back of big drops in food prices.
It slowed 51 basis points month-on-month to 6.97 percent in June, according to Bangladesh Bureau of Statistics.
Zahid Hussain, lead economist of the World Bank's Dhaka office, said June's descent was driven by food inflation, which plunged 109 basis points to 8 percent during the month.
The significant decline in food inflation was propelled by the drop in rice prices with the harvesting of what reportedly has been a bumper boro crop, he said.
BBS Director General Golam Mostafa Kamal said the weight of rice is more in the index for inflation. “As rice prices fell, so did inflation.”
Besides, food imports increased in recent times, which also helped in lowering food inflation, Zaid Bakht, research director of the Bangladesh Institute of Development Studies, said.
During the July-May period of last fiscal year, food grain imports shot up around 125 percent from the previous year, according to central bank statistics.
Meanwhile, June's figure took fiscal 2013-14's average inflation to 7.35 percent, which is above the government's target of 7 percent.
Planning Minister AHM Mustafa Kamal, while releasing the data yesterday, said inflation remained stable throughout the year and it was near the budgetary target.
“The success came as the economy was run in the way it should have been,” he said at a press briefing at the NEC auditorium.
He said the price of major food items fell by average 16 percent in the international market over the last two months, which brought about the fall in inflation.
Non-food inflation though increased 29 basis points to 5.45 percent last month.
Hussain said the recent recovery in economic activities aided by political stability, revival of income growth in services and a significant moderation of remittance decline, have contributed to the slight increase in non-food inflation in June.  
The recent increase in consumer credit through banks might have caused the increase in non-food inflation, Bakht said. To prevent further rises through this mechanism, the central bank has increased the cash reserve requirement for banks by 0.5 percentage points to 6 percent.
The planning minister, however, dismissed the link between the rise in non-food inflation and soaring of bank loans.
Kamal said non-food inflation rose because people have increased their spending ahead of Eid-ul-Fitr, the biggest religious festival in the country.

Looking in to the new fiscal year, the government has set the target of containing inflation to within 6 percent throughout the year. Hussain said achieving the target will depend on international price trends as well as domestic macroeconomic policies.
Internationally, despite favourable prospects for cereal supplies, several uncertainties hang over the near-term future, such as the weather in the US and possible escalation of geopolitical tensions in the Arab world or Ukraine, which has been exerting upward pressures on prices, he said.
“However, what will matter most for Bangladesh are domestic supply conditions and macroeconomic management.”  
The 5 percent budget deficit target, if achieved, is unlikely to be inflationary if it is not monetised. “We expect the forthcoming monetary policy statement to maintain a cautionary stance to ensure price and exchange rate stability, as it did in the year just past,” Hussain added.