“Inflationary pressure is higher than official figures suggest”

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https://www.youtube.com/watch?v=eW9gNPJHFFI

Hossain Zillur Rahman, executive chairman of the Power and Participation Research Center (PPRC), talks about inflation and the discrepancy between official and real data in a conversation with Eresh Omar Jamal of The star of the day.

Bangladeshi consumers have been facing inflationary pressures for months. Yet some experts suggest that in reality inflation is even higher than the official figure. What is your opinion on that?

There are very plausible reasons why actual inflation may be higher than the official figure. Prices have been rising faster in recent months, but if you look at the price of rice, for example, it has remained high throughout the Covid pandemic. So yes, recent inflation is significant, but the upward price trend has been there for some time. The official inflation figure is around five or six percent, while the inflation rate suggested by analysts such as Sanem after actual fieldwork is around 11 to 12 percent. The gap exists not because officials examine one reality and experts examine another – there is only one reality. The problem here is the calculation method.

The official approach to the calculation has two major drawbacks. One is the use of an outdated baseline. Despite the availability of the recent baseline from the Household Income and Expenditure Survey (HIES) 2015-16, the official calculation of the inflation rate is still done using the baseline from the HIES. ‘HIES 2005-06. The second question is how precisely the consumption baskets of the poor are assessed and how the corresponding weights in the calculation process are set. Household food expenditure is an important issue here. The official figure on the food expenditure ratio of the poor appears to be an underestimate. So, in a way, inflationary pressure, especially on poorer households, is more severe than the official figure suggests. And this is clearly hurting the poor and even the middle class segments, because incomes have not increased alongside these price increases.

Why would the government use data from 2005-06 when more recent data is available?

At one level, it’s a matter of bureaucratic inefficiency. But there is also another angle. There is a tendency in official circles – both technical and political components – to rely on data that presents a more benign image for themselves. This problem of data hesitation – not using the government’s own data if it doesn’t conform to a rosier picture than it actually is – has become very pronounced of late. This results in the government failing to address the critical challenges that the data may indicate. It’s not just inflation data. Data on other critical areas – school performance, health care cost burdens, employment – ​​are neither collected nor published.

What are the main reasons for the current inflation?

Unfortunately, no in-depth study has been conducted to find the answer to this question. But by connecting the dots, we can identify some very immediate factors and some medium-term factors. Inflation can occur when there is excess money supply. Although central bank policy has been rather expansionary, neither credit growth nor remittance flows, which are the two main drivers of realized money supply, have recovered. Stimulus packages, too, were not in major fiscal transfers – which would have added to the money supply – but were in the nature of concessional credit through the banking system. Thus, the current inflationary trend does not seem to be demand-driven.

On the contrary, what we seem to have is more in the nature of cost inflation. The prices of some essential products, such as edible oil, have increased due to external factors. But there’s a conundrum in Bangladesh that even the experts struggle to explain. The very persistent increase in the price of rice, despite a bumper harvest, high imports and purchases throughout the Covid period, has been difficult to explain. Is it because our population figures are incorrect? Are we underestimating demand and therefore not supplying enough? The other possibility, of course, is market manipulation. But again, we don’t have any major studies to definitively say that’s the case. What can be said definitively is that the government has not made price monitoring and market forecasting a priority. Thus, current inflation may be a combination of cost pressures and market imperfections and poor governance. I will also add that while discussing inflation, we also need to focus on non-food inflation. A PPRC-BIGD survey conducted last year highlighted how food and non-food inflation hurt the poor, a trend that has worsened this year.

You mentioned the need for further investigation to find the reasons. Has the government done this?

No; as I said, there is a problem of data hesitation in government. It’s almost as if they were afraid to find out the truth. If you find the truth, you must act accordingly. This may mean that you have to upset some of your followers who may be the beneficiaries of poor market governance. The other problem is systemic weaknesses. It’s kind of sad when the trade minister says they can’t control prices. It should not be forgotten that ministerial declarations also serve as signals to market players. The Ministry of Commerce has a very important function related to price monitoring and market forecasting. But the institutional capacity for this has not really been developed or prioritized. Of course, if the war in Ukraine has destabilized the world food market, Bangladesh alone cannot protect itself. But that’s not the full picture. Yes, there are global factors beyond our control that affect commodity prices. But there are also many other factors that are within our control. If we had had good market surveillance, we could have better identified the measures to be taken.

I must add that the government is taking action. But they are always too little, too late and often with less than normal efficiency. The problem is not that the government can administratively control the market. Rather, the question is to what extent it prioritizes market surveillance and the design of adequate safety net interventions to minimize the suffering of the millions of poor and new poor.

On the question of the intervention of the safety net, there is an additional problem. The government does not seem interested in seeing this as a national problem, but sees it narrowly from the point of view of the bureaucracy and the ruling party. They are reluctant to involve social actors in a meaningful way, especially in the difficult task of registration. Last year the government announced that it would give 2,500 Tk to five million people. Eventually, they could only cover $3.4 million, that too, with numerous corruption allegations in the list. Finding who needs help the most is not an impossible task. But the government has been very reluctant to involve non-governmental social actors in the process beyond a token approach. The problem is national and the government must use all the capacities available within the nation.

When prices in Bangladesh increase, external factors are often blamed. Yet when international prices fall, we hardly see our consumers benefit. How do you explain the double standard?

There is, of course, a double standard at play here. International factors play a role in the rising costs. For example, the price of consumable oil has increased recently because it is almost entirely imported. But you are right. Once the prices go up, they never go down in our country. And the problem here, again, is market surveillance. By market watch, I don’t mean a bunch of bureaucrats going to the market once in a while, with a bunch of TV cameras for public relations purposes. What we need are specialized cells that monitor and review local and international prices, then decide where to intervene if necessary.

There’s also a bit of psychology involved with prices never dropping. Sometimes people get used to these new prices which, in the absence of appropriate government interventions, allow influential market players to exploit consumers. The lack of necessary information available to consumers also allows this exploitation. Consumers don’t know how much supply there really is, how much traders still have in their warehouses, etc. But the government is supposed to monitor this on behalf of consumers, share this information with the public, and use it to keep prices low. This did not happen, unfortunately.

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