An overview of inflation in Bangladesh
Every year, inflation increases the price of commodities in Bangladesh. The government of BD is trying to control this. The inflation rate is around 5.5% in 2020.
Inflation is a situation when the actual value of money decreases. You have to pay more money to buy the same products in times of inflation. Generally, inflation is a situation when the ratio of money supply increases in terms of goods and services and it increases the general price level.
Inflation of Bangladesh
Occurring inflation in a developing country like Bangladesh is exceptional to economic theory. Generally, inflation occurs after full employment. In developing countries, inflation is seen even some of their resources remain unused.
In a developing country, inflation occurs due to scarcity of capital, inferior technology, defective production system and proper plans. Bangladesh also facing those problems and inflation occurs here.
Inflation is a big problem and it hinders our countries economic and social development. Immediate after independence in 1971, inflation is increasing with leaps and bounds.
Inflation rate in Bangladesh
In 2018 the inflation rate was 5.54% and in 2019 it turns to 5.59% as it increases 0.05% from the previous year.
|Year||Inflation rate (%)||Changed from previous year|
|2019||5.59||0.05% increase from 2018|
|2018||5.54||0.16% decline from 2016|
|2017||5.70||0.19% increase from 2016|
|2016||5.51||0.68% decline from 2015|
Causes of inflation in Bangladesh
- Increasing the supply of money: Increasing the money supply is the main reason for inflation in Bangladesh. In the year 1972, the total money supply (M1) of this country was TK 4857 million and in the current year July 2020, it increases to TK 3398741 million.
- Liberal debt policy: Liberal loan policy by banks is another reason for higher inflation. To accelerate the economic development of BD banks was taken that policy. As a result, the cost of production increases than production and inflation occurs.
- Increase administration cost: To complete all government jobs fast and elegantly; government expenditure increases.
- Shortage of food: Food scarcity increases inflation. When the supply of food is lower than demand; the price level of foods increases. Due to flood or drought supply of food decreases in this country.
- Increase the cost of production: When the price of raw material increases, it will increase the cost of production and the price level increases.
- Increase import cost: If the price of imported products increases or the government
- Deficit expenditure: Every year government faces a budget deficit on its development program. So, it fills its deficit by money supply.
- Increase export: In recent years, the exporting rate increases. As a result, domestic supply decreases and inflation increases.
- Hoarding & smuggling: Some dishonest businessman creates an artificial scarcity of products by stocking them and price level increases. Some dishonest businessmen also smuggle products and create a shortage.
- Payscale change: The government increases the salary of government employees and the overall market price level increases.
- Underdeveloped transportation system: An increase in the transportation cost of products can increase the price of that product.
Kinds of Inflation in Bangladesh
- Galloping inflation: After independence, galloping inflation was seen in Bangladesh. In this type of inflation price level increases very fastly.
- Demand-pull inflation: Money supply increases but the production of goods and services are not increases at the same rate. So, demand-pull inflation occurs here.
- Cost-push inflation: Production cost of goods increases and price level also increases in this country.
- Profit inflation: To cover the high production cost and bring profits, businessman increases the price of products.
- Ratchet inflation: Inunderdeveloped transportation system, it requires extra money to transport products from one place to another. In Bangladesh it occurs in the agriculture sector; the price of agricultural production is low where it produces and the price is high where is not produced.
Effects of inflation in Bangladesh
Inflation has created a complex situation for Bangladesh’s economy. Immediate after independence inflation grasps to our economy and the general price level increases. Some dishonest businessman and low productivity was the main reason for inflation of that time.
But in the current time inflation in our country is also high. The condition of Day labor, constant income people, employees, small farmers, and middle-income people are miserable.
Inflation has also bad effect on the social and economic sectors. Inflation can increase the price level but it increases the production cost. As a result, the price level increases.
Smugglers and hoarders make huge profits in times of inflation. So, they always try to create this situation.
Because of inflation cost of living has increased. The price level is getting higher and higher, so, the actual income of common people decreased. Decreased in actual income decreased savings and it will decrease investment. So, dependent on foreign aid and loans increases.
Inflation increases the production cost and the price of our products are getting high; it is reducing our export. It creates an unequal balance of payment.
Inflation has an effect on our social life. It enhances the chances of corruption, forgery and speed money. People are living in an uncertain situation and feeling depressed.
Measures to control inflation in Bangladesh
- Increase the production of goods and services to control the price level
- Increase import of necessary commodities to cope with the shortage
- Eliminate food deficit
- Reduce production cost
- Omit deficit expenditure
- Control price level by an authority
- Encourage people to save more and more
- The government should take loans from the public to control the money supply
- Develop a transportation system of our country
- Control hoarding and smuggling
- The government can reduce indirect tax and increase direct tax
- The government can operate fair price shop everywhere of this country
- The maximum retail price should write down on every product.
Bangladesh Bureau of Statistics