Remedy of Inflation


Unfortunately, there is hardly any market oriented policy move on the part of fiscal or monetary authorities that can be taken for checking the cost induced inflation. On the fiscal side, although cutting down of the indirect tax on commodities is often proposed as a remedial measure, it only makes a temporary contribution to reducing inflation. Long-term continuation of such policy may cause continuous erosion of the government exchequer. Some also argue in favor of government control on wage increases that are not supported by the corresponding increase in productivity to resist wage-price spiral. In Bangladesh, however, the presence of powerful trade unions tends to render the implementation of such control almost impossible. On a positive note, however, our analysis did not find any noteworthy impact of wage growth on inflation. It is widely recognized, however, that government can effectively use its legal powers to break up the market syndication and thus improve competitiveness of the distribution network.

On the monetary side, in the absence of any direct controlling instrument, Bangladesh Bank can initiate some case specific counter-action. Bangladesh Bank can take over some responsibilities such as monitoring modalities of Letter of Credit (L/C) operation so that market forces determines the exchange rate in a process that remains free from much speculative transactions.

• Renowned economist Prof Rahman Siobhan at a recent seminar organized by the Center for Policy Dialogue (CPD) said inflation hurts ordinary people of the country. So, monetary policy of the central bank should ensure their welfare. Appreciating government measures after the devastating floods in 1998, he said the central bank should take proper steps in line with those post-flood programmers.

• Following the government move, Tk 2412 crore is going to be allocated in the revenue    budget for increasing agriculture production and to supply agricultural inputs at low costs. Of this amount, Tk 350 crore will be allocated for agriculture research, Tk 750 crore for diesel supply and Tk 1312 crore for supplying fertilizer and electricity at subsidized rates.

• The government has already taken some initiatives to check inflation. The chief adviser in his address to the nation on Sunday mentioned some government programmers like Open Market Sale (OMS). Price of rice under OMS has been fixed at Tk 19 a kg against the import cost of Tk 25 per kg. Import of 900,000 tones of food grains under government initiative during the current fiscal year is now being finalized.

• The central bank can use two instruments – interest rate hike and lower money supply – to curb inflation. Central bank can issue government bond and securities in the market to reduce the money supply.

• The import rate of Bangladesh is highest among other south Asian country [almost 35%], so the price of goods and services fluctuate based on the rise and fall in world price. To stabilize rice price in domestic market, the government should import coarse rice from Myanmar or Indonesia or any other country where rice is cheaper.

• Stock market can play a important role in controlling inflation by easing the investment policy and implying effective monetary control on the profit distribution of companies to the investors.

• Government can imply the flexible terrif and quota system to control the import price and make it stable in the domestic market.

• Government should find the alternative country or place for importing goods rather than depending only on India.

• Unethical storing or warehousing should be controlled with developing new laws and efficient apply of consumer law.

• Government can establish new agencies like TCB or make sure their continuous efficient operation.

• And at last try to ensure the domestic production is increasing and take active and elaborate plans for that and ensure the swift and smooth agricultural production.