Inflation edges down, but living costs remain high

Inflation eased only marginally in October as a sharp rise in non-food prices offset a decline in food prices, keeping the overall rate above 8 percent for another month.

Slower wage growth has added to the pressure on household budgets, making it harder for low-income families, daily wage earners and people on fixed incomes to cope with the rising cost of living.

Point-to-point inflation fell to 8.27 percent in October from 8.34 percent in September, but remained higher than the 8.17 percent recorded in the same month last year, according to Bangladesh Bureau of Statistics (BBS) data released yesterday.

Food inflation dropped to 6.40 percent from 7.22 percent in September, its lowest level in 54 months. The last time it was lower was in April 2022, when it stood at 6.23 percent.

However, non-food inflation climbed to 9.89 percent from 9.30 percent, its highest in 41 months and close to the 9.96 percent recorded in May 2023.

BBS officials said the fall in food prices had been offset by rising non-food costs, keeping overall inflation high.

Zahid Hussain, former lead economist at the World Bank’s Dhaka office, said rising non-food prices were now the main driver of inflation.

He said the fuel price adjustment in September would continue to push up prices for another month or two, as its full impact would take time to reach consumers. Changes in electricity tariffs, supply shortages and higher import costs would add to the pressure.

“The petroleum price adjustment made in September definitely has an impact, and that will persist for the next month or two, because the full effect doesn’t come all at once,” he said.

Mohammad Lutfor Rahman, a professor of economics at Jahangirnagar University, said favourable weather and improved seasonal supplies of vegetables, potatoes and onions had helped bring down food inflation.

However, higher transport, education and medical expenses continued to push up non-food inflation. The recent fuel price hike had increased transport costs, with operators quickly passing the additional burden on to passengers through higher fares.

“Transport operators have raised fares almost immediately, passing a disproportionate burden on to consumers,” he said.

Wage growth slows, squeezing households

Wage growth also lost pace in October, falling to 7.63 percent from 7.9 percent in September. It had remained above 8 percent for several months, according to BBS data.

Zahid said the slowdown meant workers were losing purchasing power even as inflation eased.

“Even though inflation has fallen, real wages have not increased. Instead, the rate at which they are falling has accelerated,” he said.

The wage index covers 63 low-skilled occupations, mainly involving daily labour. Zahid said the figures reflected the financial struggles of a large section of the population.

“At least eight to ten crore of our 18 crore people fall within this group, so at least half the population is affected,” he said.

“For those who depend on wages, survival is becoming even more difficult. Our vulnerability is increasing,” he added.

Lutfor said persistently high inflation was forcing low-income households and daily wage earners to cut spending, even on essential items.

“People are cutting spending not only on non-essential items but also on basic needs. Many are struggling to pay for food, children’s education and medical bills. Some are even using their savings to meet these costs,” he said.

The pressure on household budgets was also hurting businesses, as consumers were spending less on clothing, shopping and other non-essential goods, he added.

Zahid questioned whether the government’s inflation target of 7.5 percent was achievable, saying even that level would be too high to ensure international competitiveness.

“Even if the target is achieved, I won’t be very comfortable. With 7.5 percent, you cannot be internationally competitive,” he said.

He acknowledged that bringing inflation down within a year might not be realistic but said meeting the target would at least signal progress. However, the latest figures suggested that even reaching that level could be difficult.

Zahid also ruled out strong demand as a major cause of inflation, pointing to weak credit growth despite Bangladesh Bank’s policy rate cuts. He said inflation was largely being driven by higher production and operating costs rather than rising consumer demand.

He also blamed weak market oversight for allowing additional costs to build up, including through extortion by influential groups.

Expressing concern over the rapid expansion of Bangladesh Bank’s balance sheet and the growth of high-powered money, he warned that any money flowing out of the banking system could add to inflationary pressure.

Md Deen Islam, research director at Dhaka-based think tank RAPID, said weak investment demand and slower wage growth had kept overall demand subdued, limiting inflationary pressure despite higher energy prices.

He cautioned that the full impact of higher energy costs might not yet have been reflected in consumer prices. As economic activity returns to normal, the pressure could become more visible.

Deen also credited favourable weather, good agricultural production and government incentives for farmers for easing food inflation.

A relatively stable exchange rate and steady global commodity prices had helped contain import costs, he added.

“Inflation in Bangladesh depends considerably on global price movements. During this period, the exchange rate remained relatively stable at around Tk 122 to Tk 123 per dollar, while global commodity prices were mostly stable or falling, limiting pressure from imports,” he said.

Source: The Daily Star