INTERNATIONAL BACCALAUREATE

Internal Assessment
Economics
Microeconomics- Commentary on 'Bangladesh April inflation
quickens, unrest disrupts supplies'

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Article: - Bangladesh April inflation quickens, unrest disrupts

supplies
(Wed May 8, 2013 2:28pm IST)
May 8 (Reuters) - Bangladesh's annual inflation rate picked up in April on surging food and nonfood costs and price pressures could intensify on supply disruptions due to political unrest.
Inflation in April accelerated to 7.93 percent from 7.74 percent in March, officials of the
Bangladesh Bureau of Statistics said on Wednesday.
Food prices in April were 8.57 percent higher than a year earlier, up from 8.30 percent in March.
Non-food inflation rose to 6.81 in April from 6.79 percent the previous month.
"A rise in prices of rice, fishes, fruits and other items pushed food inflation higher," a senior
bureau official said, adding that food prices could climb again due to supply problems over
political unrest such as strikes and street violence.
Non-food inflation went up mostly due to clothing, house rent and transport costs, the official
said.
Bangladesh has been rocked by a series of nationwide strikes on issues ranging from war crimes
tribunal to election rules over the past few months. The main opposition party enforced strikes on
Wednesday and Thursday.
Another strike called by a hard line Islamist group hit the country on Sunday after the Friday and
Saturday weekend.
April's reading based on the new series using 2005-06 as a base year was 8.37 percent, up from
7.71 percent in March.
The government raised oil prices by up to 11.5 percent in January in a bid to trim the subsidy
burden, but backtracked on a plan to increase electricity tariffs.
Price pressures are a major concern for the government, which faces an election in early 2014.
In February, the central bank cut its key policy rates for the first time since 2009, by half a
percentage point, on a slower economic growth outlook.
It also cut its growth forecast to 6.4 percent in the current fiscal year ending in June, down from
7.2 percent targeted earlier, as sluggish global demand weighs on exports. Bangladesh aims to
trim inflation to 7.5 percent in the current fiscal year.

Annual inflation in the financial year that ended in June 2012 accelerated to 10.62 percent from
8.80 percent the previous year. Non-food prices were the major contributor as the government,
saddled with a huge subsidy bill for oil, and raised fuel and power charges several times.
(Reporting by Ruma Paul; Editing by Jacqueline Wong)

Bangladesh April inflation quickens, unrest disrupts supplies

The rate at which the general level of prices for goods and services is rising, purchasing power is
falling rapidly. Central banks attempt to stop severe inflation, along with severe deflation, in an
attempt to keep the excessive growth of prices to a minimum.1
Recently prices of food and non-food have
increased due to political unrest, opposition party
enforcing strikes and a hardline Islamist group
hitting the country and more pressure for the
government.
Demand is the quantity of a good or service that
consumers are willing and able to purchase at a
given price in a given time period. Supply is the
willingness and ability of producers to produce a
quantity of a good at a given price in a given time
period. Inflation is an increase in the price of a
basket of goods and services that is representative of the economy as a whole.2
A rise in prices of food in Bangladesh has upset the entire family budget. Fruits and other food
items too have contributed to higher inflation a senior bureau official said, adding that food
prices could climb further due to uneven supply. As shown in graph the non-food inflation went
up mostly due clothing, house rents and transport cost the official said which leads to rise in
inflation.
Inflation and political uncertain environment have affected Bangladeshi economy in a negatively.
It has also affected the confidence of the common
people and consumption level.
The prices of fuels have also increased which has
lead to further inflation. Transport has become very
expensive with increase in fuel cost.
Prices of houses have also gone up and the banks
seem less enthusiastic in financing the housing
sector, The Real Estate and Housing Association of
Bangladesh say that the price of land increased
significantly. Land owners are giving up their land to
1
2

http://www.investopedia.com/terms/i/inflation.asp
Source:- IB Diploma Programee Economics Course Companion

the Real estate developers, as the housing market scenario seems lucrative. Housing being basic
necessity, the demand is unlikely to go down in near future as one of the basic characteristics of
an under developed economy is lack of housing for all.

Evaluation
A minor inflation is a necessity as it acts as a stimulus for investments but a high rate of inflation
leads to a fall in purchasing power of money and reduces the confidence of common people in
the economy. There might be migration of money capital and human capital if the situation
persists for a longer period of time. High rate of domestic inflation may also mean that the goods
become expensive in international markets hitting the exports hard. It may lead to fall in demand
for domestic goods in international market and create unemployment in the domestic market.
The supply is also disturbed due to regular strikes and unstable political environment which acts
as an obstacle for the businesses in long term business planning. With low confidence due to
high inflation and political environment attracting new investments from domestic or foreign
investments becomes very difficult and there may arise a situation when there is an increase in
unemployment rate in the country.
As the prices is increasing, people would like the government to decrease the prices of clothing
and shelter which is very high in Bangladesh. People would think of migrating to the
neighboring countries where the price of needs are comparatively stable. The country wouldnt
be able to have much population which will affect the growth and the development of the
country. The prices of transportation can result to less travelers coming in the country. So less
number of tourism would be attracted to the country as the trip would get expensive and the hotel
stay will be expensive. The government should keep the price of goods specially clothing and
shelter at a moderate rate where their people can afford. If these people wont get food and
clothing, they wont be able to work so the foreign companies which have invested in the country
would be a fail as the workers wouldnt be able to work. The government should make some
laws for the workers, so that it can help them and get some right for their work; they should keep
a minimum amount of wage for the workers working for a specific time which can help them
have the basic necessities for survival.