Bangladesh News

Despite the central bank’s tight monetary policy, inflation rate increased by .69 percentage point to 7.17 per cent on an average basis in the last fiscal year that ended in June.

During the FY05, inflation rate was 6.48 percent.

This means the government missed both the inflation targets set in the Poverty Reduction Strategy Paper (PRSP) and by the Bangladesh Bank (BB). The PRSP envisaged 6 percent inflation while the BB set it at 7 percent.

During FY06, food inflation reduced by 0.15 percentage point to 7.76 percent while non-food inflation increased by 2.07 percentage points to 6.40 percent.

Depreciation of taka against dollar, fuel price hike and increase in government borrowing resulted in the non-food inflation hike, BB officials added.

In FY06, taka lost its value by 9 percent and fuel price was hiked twice. On top of it, the average lending rate increased by 0.75 percent.

The rural people had a bit of relief in purchasing food as rural food inflation decreased by 0.37 percentage point during the fiscal year, but they had to pay more for other products as non-food inflation in the rural areas increased by 2.63 percentage points. However, the overall rural inflation rate last fiscal year was 7.36 percent compared to 6.62 percent in FY05.

BB sources said the credit control mechanism did not work in curbing inflation as both public and private sector credit increased. Public sector credit clocked a year-on-year growth of 78 percent while private sector 17 percent.

However, inflation eased a little — by 0.07 percentage point — in June compared to May in the last fiscal.

Explaining the inflation trend, the BB in its monetary policy statement released last month said external trade is steadily drawing domestic consumer prices closer to global prices. Growing export of perishable consumer items such as vegetables and fish is pitching their domestic prices towards the higher export prices.

It also said that higher import prices of major production inputs have cumulated to a sustained upward pressure on domestic consumer prices, despite partial shielding of pass-through of higher oil prices.