Md. Badrul Millat Ibne Hannan: We all are the sufferer of the price spiral of the commodity from last year. People who have limited income are the most victim. There are many reasons for such price spiral. Russia-Ukraine war, Global food supply chain disruption, the increase of fuel price, dollar crisis, taka devaluation.
Recent inflation upward trends in our country mainly starts from Russia-Ukraine war. For the safety of themselves attack from Russian army, Ukraine destroyed their own port station so that the any voyager from Russia cannot stop at Ukrainian port. War does not bring any good result. So, the produced essentials in Ukraine cannot ship for export to the import country. Resultant, supply chain broke up and prices of commodities hiked. Supply chain normalization in demand and supply is an inevitable matter. This supply chain disruption contributes greatly to inflation high trend.
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There are six places of the world considered as Bread of Basked known as Agricultural Power House. If any instability occurs in these six places, more or less the entire world suffers for that. One of these Bread of Basket is Russian and Ukrainian Area. Anyone of these six breads of basket affected means the entire world effects.
| ব্যাংক, ব্যাংকার, ব্যাংকিং, অর্থনীতি ও ফাইন্যান্স বিষয়ক গুরুত্বপূর্ণ খবর, প্রতিবেদন, বিশেষ কলাম, বিনিয়োগ/ লোন, ডেবিট কার্ড, ক্রেডিট কার্ড, ফিনটেক, ব্যাংকের নিয়োগ বিজ্ঞপ্তি ও বাংলাদেশ ব্যাংকের সার্কুলারগুলোর আপডেট পেতে আমাদের অফিসিয়াল ফেসবুক পেজ 'ব্যাংকিং নিউজ', ফেসবুক গ্রুপ 'ব্যাংকিং ইনফরমেশন', 'লিংকডইন', 'টেলিগ্রাম চ্যানেল', 'ইন্সটাগ্রাম', 'টুইটার', 'ইউটিউব', 'হোয়াটসঅ্যাপ চ্যানেল' এবং 'গুগল নিউজ'-এ যুক্ত হয়ে সাথে থাকুন। |
We all know that one part of these six places is now in war. That is Russian and Ukrainian areas. A middle area of Russia named- Central Black Earth Region. Due to containing high amount of Ammonia and Phosphate this area is highly fertile. That’s why a good quantity of foods is produced here.
Among these six Bread of Basket-Russia-Ukraine areas are now engaged in a war which cannot bring any win for the two countries. In Ukrainian areas, there was no harvesting in Spring session (April to May-2022, September to November-2022). So, the problem is becoming more acute.
However, many countries depend on fertilizer to produce food items. A part of Agricultural Power House is Brazil. It cannot produce agri-food optimum level due to war. As it depends on Russia-Ukraine fertilizer. Forcedly, Brazil including other countries try to purchase fertilizer from other countries with high cost.
In this case, other export countries have increased the price of fertilizer. As a result, the production cost is being higher, subsequently, sales price is being higher. High production cost increases inflationary trend.
Bangladesh Petroleum Corporation (BPC) has increased the fuel price 51.68 percent last year. The process of fuel price increase in Bangladesh is that the BPC has to propose firstly for the increase of price to the Energy Regulatory Commission (BERC). The BERC has to arrange a public hearing. Then what the price would be fixed through public hearing.
According to the Bangladesh Energy Regulatory Commission Act-2003, section 34 (1) of the BERC Act, notwithstanding anything contained in any other law for the time being in force, the price of power generation in wholesale, bulk and retail, and the supply of energy at the level of end-user, shall be determined in accordance with the policy and methodology made by the commission in consultation with the government.
Section 34 (4) further states that the commission shall “determine tariff after giving hearing to licensees and others who have interest in it”. The punishment for violating the law as per Section 42 includes three years’ imprisonment or a fine of Tk 5,000.
Now the question is the increase of fuel price was a mandatory? In the last seven years, the Bangladesh Petroleum Corporation (BPC) made a huge profit without any price cut though fuel prices fell in the international market.
The authorities are making fuel gains from two sides. They are collecting 30%-32% duty on fuel oil. Besides, the BPC profited for a long time as it did not lower the prices despite the global market fall.
According to GlobalPetrolPrices.com there are three types of process fixing fuel price-
01. Market-determined retail fuel prices.
02. Price ceiling.
03. Fixed price.
But it is the matter of concern that Bangladesh follows the last one. A news from the Daily Star stated that the government has enhanced the consumer level price of electricity by 5 percent bypassing the public hearing of the Bangladesh Energy Regulatory Commission.
The hike will be effective from January 2023, according to a notice from the ministry of power, energy and mineral resources. During a hearing on January 8,2023 the technical evaluation committee of the BERC has recommended raising the retail electricity price by 15 percent. BERC was supposed to declare the new price within 60 working days of the hearing.
The state minister for power, energy and mineral resources says that the price will be adjusted every month. This fuel price and electricity price increase has pushed to the mass people in sufferings. This increasing trend of fuel and electricity price have confirmed the high inflationary trend. While writing this article, BERC bill 2023 has been amended in the parliament.
World also has witnessed that US seized the US dollars reserves of Afghanistan and Russia. Among these seized reserves USD 300 billion of Russia which is equivalent to 35 percent of its GDP. While seizing Afghan or Russian reserves may feel righteous and just, the immediate effect of such actions is to completely undermine the credibility of dollar debt as an international savings device. It is a great lesson to the other countries. Now other countries consider themselves that if they keep reserves in the form of US dollar, anytime they might face sanctions by USA and allies’ countries in future and fear grow that the loss of reserves. In the meantime, Federal Reserve of USA increased interest rates three times in last year.
Apparently, mass people blame Russian invasion on Ukraine. But increasing interest rate by Fed is playing a vital role to such spiral. If interest rate is higher in the USA than other countries, there is a great chance to transfer the amount to America or American banks or Banks supported by US, located in any country via Money Laundering, Hundi, by any third Countries due to gaining returns without any business activities. Such activities contribute to increase the inflation.
Our currency has been devaluated against US dollar. It reached its highest peak in history in the kerb market on August 10, 2022 it hit Tk.119.90 against US dollar. If no supply chain disruption, fuel price increase, war, global dollar crisis occur, inflation will be high in the country by only cause of Taka devaluation.
An increase in inflation means that prices have risen. With an increase in inflation, there is a decline in the purchasing power of money, which spends more money to buy same product and therefore GDP decreases. High inflation can make investments less desirable, since it creates uncertainty for the future and it can also affect the balance of payments because exports become more expensive.
As a result, GDP is decreases further. So, it appears that GDP is negatively related to inflation. However, there are studies indicating that there may also be a positive relationship. The Phillips curve, for example, shows that high inflation is consistent with low rates of unemployment, implying that there is a positive impact on economic growth.
This increase trend of inflation forces the people to hold more cash on hands. Because people spend more money than previous to buy same product.
According to BBS (Bangladesh Bureau of Statistics), inflation rate of the country is point to point basis December-2022 is 8.71 percent and November-2022 is 8.85 percent.
New Age stated that the amount of cash outside the country’s banks soared to record Tk 2,42,026 crore in July as people held cash in their hands to meet rising living costs.
Bangladesh Bank data showed that cash outside banks hit its highest in April when it was at Tk 2,36,791 crore.
The amount of cash outside the banking system was Tk 2,36,448 crore in June 2022 and Tk 2,09,517 crore in June 2021. The amount of cash outside the country’s banks soared to record Tk 2,52,982 crore in November 2022 as people rushed to withdraw their deposits and held cash in their hands.
The deposit decline of all banks in the country is mainly from the inflationary high trend.
Analyst: Md. Badrul Millat Ibne Hannan, MPA, AIS, (DU), Certified Financial Consultant (CFC, IFC, Canada), ACCA (Final Leve). Currently working at Islami Bank Bangladesh Limited.
