Inflation prompts poverty situation

For more than the past two years, high inflation in Bangladesh's domestic economy has become one of the most discussed issues. Along with economic mismanagement, inflation has created numerous challenges. Dr. Salehuddin Ahmed, the finance advisor to the interim government, has said, "Political compromise is difficult, but extortion is easy." In other words, he means that creating political consensus for public welfare is difficult, but engaging in unethical activities, especially financial corruption, is not. This suggests that some people are quite adept at fulfilling personal interests illegally. Political rivals often cooperate with each other for financial gains. Financial wrongdoers conduct their activities through mutual cooperation. The era of 15 and a half years of authoritarian rule has ended. After former Prime Minister Sheikh Hasina resigned and left the country on August 5, there was hope that the financial damages caused during her tenure might be repaired quickly. However, five months have passed since the interim government took office, and there is still no sign of any resolution to these financial issues. A common trend observed during the previous government's rule was that at any time, without any logical reason, the prices of certain products would rise abnormally, causing severe public hardship. Unfortunately, this trend still persists.

Inflation can be defined as the rise in prices of goods without any logical reason, despite the surrounding economic conditions remaining unchanged. For example, if the production and supply systems of a country are functioning normally but the prices of goods increase, this situation can be considered inflation. Inflation is not always detrimental to the economy. Sometimes, a moderate level of inflation can be desirable to encourage production. However, if inflation turns negative, consumers may benefit, but the grassroots production classes will be harmed as they will not receive the correct price for their products. This may cause producers to lose interest in increasing production the following year, which can harm the country's production and supply systems. Therefore, a certain level of inflation is necessary. In an economy like Bangladesh, inflation between 3 per cent and 4 per cent is considered tolerable, but anything higher than that may be considered catastrophic.

There is a common misconception that when the price of one or two products increases abnormally, it is considered inflation; however, that is not the case. To measure inflation, certain products are considered. In economic terms, the price increase of one or two specific products does not constitute inflation. In the context of the Bangladeshi economy, the Bangladesh Bureau of Statistics measures inflation by considering the average price increase or decrease of certain specific goods. These specific products are categorized into two groups: those for urban areas and those for rural areas. For urban inflation measurement, 422 products are considered, while for rural areas, 318 products are used. If the average price of these products increases, it is considered an upward inflation trend. Conversely, if the average price decreases, inflation is considered to have decreased. Inflation is also divided into two categories: food inflation and non-food inflation.

The decline in the exchange rate of the local currency, the taka, or the weakening of its purchasing power can be referred to as inflation. When inflationary trends arise, people's purchasing power decreases compared to before. This worsens the hardship of ordinary people, especially those with low and fixed incomes. When inflation reaches high levels, it is considered a monster for the economy. In such a scenario, consumers cannot buy the same amount of goods and services with the same amount of money as before, which leads to frustration among the general public. The most affected by high inflation are the disadvantaged groups who struggle to meet their needs. These people are mostly laborers who cannot increase their wages in proportion to inflation. For higher-income individuals who can adjust their income, high inflation does not pose much of a problem.

Producers at the grassroots level typically wish for the prices of the goods they produce to increase, while consumers always hope for prices to either remain stable or decrease. This creates an ongoing tension between consumers and producers. If, for any reason, the production and supply of a product decreases, its price may increase. Similarly, if the demand for a particular product rises, inflation can occur. Even when production is normal, transportation issues can lead to price increases. There is no country in the world where inflation does not occur. Inflation tends to fluctuate, showing both upward and downward trends. If, despite other factors remaining unchanged, the average price of certain goods increases, or negative inflation occurs, it creates problems for consumers. On the other hand, when negative inflation occurs, ordinary consumers benefit as they can purchase necessary goods for less money, but grassroots producers suffer because they do not receive the expected price for their goods.

In countries like ours, regardless of whether inflation increases or decreases, neither consumers nor producers benefit. This is because middlemen take advantage of the helplessness of grassroots producers and buy goods at lower prices than the market rate, then resell them at inflated prices to consumers. No matter how many measures are taken in Bangladesh, high inflation will not be reduced to a tolerable level without significant impact. The market prices are controlled by politically influenced syndicates. If these syndicates are not eradicated, it will be impossible to bring the prices of various goods back to normal levels. The Governor of Bangladesh Bank has stated that it will take a year to bring inflation down to a normal level. But what will the ordinary people do during this year? Will they just watch their misfortune unfold?

There are allegations against the Bangladesh Bureau of Statistics (BBS) that, during the previous government, they tried to downplay the high inflation rate. As a result, the general public was kept unaware of the real inflation situation. Currently, bringing the abnormally high inflation down to a manageable level has become the biggest challenge. From various statistics, we can understand that the country is experiencing unusually high inflation, but have we ever considered how this high inflation is jeopardizing the lives of ordinary people?

During the COVID-19 pandemic, a global trend of high inflation emerged. Just as the global economy was recovering from the pandemic, the Russia-Ukraine war broke out. At the time the war began, the production of food and other goods was at normal levels, but the war caused a significant rise in the price of oil worldwide. This led to a severe disruption in the transportation sector. High inflation tendencies were observed all over the world, including in the United States. In response, the Federal Reserve Bank of the United States managed to bring inflation to a more normal level through policy rate increases and other measures. However, despite the Bangladesh Bank increasing its policy rate, the maximum interest rate on bank loans was set at 9 per cent, which caused high inflation to continue rising instead of decreasing. This trend is still ongoing. It is necessary to investigate on whose advice the Bangladesh Bank set the maximum interest rate for loans at 9 per cent, and hold the responsible officials accountable for their actions.

Although economists discuss how abnormal inflation impacts the economy, there is rarely a discussion on how high inflation affects poverty levels. The people most severely impacted by high inflation are those with limited and fixed incomes. While the income of ordinary people increases, inflation rises at a much faster pace. As a result, their purchasing power and spending capacity continue to decline. A recent research report by the private research organization Research and Policy Integration for Development (RAPID) highlighted how high inflation impacts poverty. Their study indicates that over the last two years, due to persistent high inflation, 7.8 million people have fallen below the poverty line, with 3.8 million entering the ultra-poor category. Additionally, another 9.83 million people are at risk of falling below the poverty line. If inflation is not controlled in the future, these individuals may also slip deeper into poverty. According to another research institution, during the COVID-19 period, 34 million people fell below the poverty line, and further research is needed to determine how many of them have managed to rise above the poverty threshold.

The inflation statistics currently presented are not complete or entirely accurate. The inflation data published by the Bureau of Statistics often do not reflect the actual market conditions. Fluctuations in fuel prices have a significant impact on inflation in the domestic market. During the previous government's tenure, the price of fuel was raised by 42 per cent under the pretext of rising global fuel prices. At that time, it was promised that if international fuel prices fell, the local prices would be adjusted accordingly, but that promise has not been fulfilled. To control the continuously rising inflation, it is crucial to reduce fuel prices. Effective measures must also be taken to prevent money laundering through international trade.

At this moment, controlling inflation must be given the highest priority. Poet Sukanta Bhattacharya once wrote, "Poetry, I grant you leave today / In the land of hunger, the world is mundane, the full moon looks like scorched bread." The common poor people do not understand revolution; they only care about whether they can get two meals a day. If ordinary people cannot afford essential goods in the market, nothing will soothe them. The interim government has been granted full authority by the people. If it fails to use that power to control inflation, it is only natural that there will be adverse reactions from the public.

M A Khaleque: Retired General Manager, Bangladesh Development Bank PLC and a writer on economic issues.