While the countries were recovering from the trade war and pandemic induced economic slow down, the Russia-Ukraine war has further exacerbated the already-existing problem by disrupting global supply chain and destabilising the production. Since the economy is more globalised and interconnected now, the domino effect of these crises have caused global inflation and price hike.
Like countries all over the world, Bangladesh is also dealing with the adverse impacts of global inflation i.e. rising inflation rate, food price hike, disruption in the commodity supply chain, and decline in foreign currency reserves. However, in comparison to the other South Asian countries, Bangladesh is still performing as one of the most stable economies in the region.
Rising Global Inflation and Food Price Hike
The Current inflation and price hike started back in the US-China trade war in 2018 when the prices of commodities increased in the global market due to disruption and delay. The situation got worse during the Covid-19 pandemic as the inflation rate and price reached an all time high since the financial crisis in 2008. In 2022, when the global market was recovering from the Covid-19 pandemic, the breakout of Russia-Ukraine war further impacted the global market by disrupting global logistic and supply chains.
As Ukraine shares 12% of the world’s total food production and supplies 17% of percent of the world’s corn, and Russia contributes to 16% of food production as well as exports oil, gas, fertilizer, chemical goods, the Ukraine war contributes to the surge of inflation. The sanctions imposed by USA on Russian economy has also made it tough for the traders to maintain the natural supply and demand mechanism, which in turn result in increasing price of food, energy and daily commodities.
Countries across the world are, therefore, facing serious economic turmoil. The US inflation rate has reached to 8.6% in May which is higher than its been since 1981. Other parts of the world, including Turkey, Argentina, Brazil, China, and India are also suffering due to higher inflation, increasing food and daily commodity price.
India, the third largest economies of Asia, has also hit 7.8% inflation in April which is highest in last 8 years. India’s economic growth also slowed to the lowest a year in the first three months of 2022 due to weakening consumer demand amid soaring price soaring prices of daily commodities. Between September 2021 to April 2022, the consumer food price inflation in India has also risen from 0.68% to 8.38% year on year.
Pakistan, another South Asian country is also going through economic turmoil, including high inflation, reserves declining to as low as less than two months’ of imports and a fast-weakening currency. Its inflation climbs up to 13.8% in May due to rising food and fuel prices. The consumer food prices rate in Pakistan surged to 17.3% in May 2022.
Impact on Bangladesh
As an importer of edible oil, food, sugar, intermediate goods, fuel oil and raw materials for production, Bangladesh is also not immune from the adverse impact of global inflation, food and consumer price inflation. According to data published by the Bangladesh Bureau of Statistics, the inflation rate in Bangladesh rises 7.42 percent last month, up from 4.87 percent a year earlier, while the food inflation rate accelerated to 8.3 percent. Bangladesh’s consumer prices rise 7.42% in May which is highest in 8 years.
The current global food price hikes have resulted in a sharp rise in price of food items in Bangladesh. Apart from food, as Bangladesh is also an energy importing country, the increased prices of oil, gas, fuels in the global market have already been reflected in domestic prices. Thus, sectors like transport and agriculture have been adversely affected. In addition, due to the looming energy crisis, Bangladesh like many other South Asian countries, is also having power cuts as a response to adjust energy shortage.
However, As per the key finding of KRF Center for Bangladesh and Center for Bangladesh and Global Affairs (CBGA), while most of the countries from the developing world are suffering from market fluctuations and economic crisis, Bangladesh has been showing resilience in terms of inflation, food inflation, foreign currency reserve.
In terms of food inflation, in South Asia, Bangladesh (8.84) has relatively stable food prices compared to three other countries i.e. Sri Lanka (30.7), Pakistan (17.04), India (8.38), and Nepal (8.83) in percentage.
Regarding foreign currency reserve, Bangladesh is still in good position in comparison to its neighbouring countries despite Covid-19 and Ukraine crisis. The foreign currency reserve of India has reduced from $7.5 billion USD to $572 billion till July, 2022. In the case of Pakistan, it has reduced from $23.2 billion to $16.4 billion while foreign exchange reserve of Bangladesh is decreased to $46.1b to $39.77 billion as of July 2022.
Though Bangladesh is still one of the stable economies in South Asia, the prolonged global inflation and food price hike might adversely affect the people and the economy of Bangladesh through increasing the gap between rich and poor, rising in the number of households falling below the poverty line, creating new economic pressure on the middle class, increasing unemployment rate as well as threatening the viability of small businesses which have already suffered losses in terms of jobs and income during Covid-19. These economic pressure might also trigger social and political unrest among the people.
Therefore, it is right time for Bangladesh to take appropriate and adequate measures to deal with inflation and price hike by effectively monitoring local and global markets, diversifying import destinations as well as increasing export by exploring new market. As it is a global problem, the government, businessman and mass people should work together to effectively handle the crisis.
