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Instability in prices: Inflation and its Effects on Families Quazi Sameer Salman Mrs. Walters English 12 January 31, 2008

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Instability in prices: Inflation and its Effects on Families Introduction One day, on a Saturday evening, I walked by few stationary and grocery stores. The time was 5:00 pm. Customers filled the stationery and grocery stores in large numbers. I stood by one grocery store to look at some of their products presents. As the number of customers increased, so did the magnitude of commotion. I heard arguments and shouts. Some people even started using slang words to express their anger. I saw customers leaving the store, bear handed. At one point, the storekeeper almost stopped responding and ordered his helpers to avoid the arguing customers if agreement is missing between the sellers and buyers. I went inside and asked about the costs of some of the products. At that very moment I realized the source of all the turmoil: the price! Like most other stores, the prices were much higher than before. For example, 1kg of rice cost almost double its previous price; farm eggs cost fifty percent more; and onions as well few other vegetables touched sky-high prices. After looking at all the prices, one point became clear: Inflation was at its peak. Problem That grocery store represented one example of the numerous stores and malls throughout Bangladesh whose unstable product prices are giving sleepless nights to millions of

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families nationwide. Instability in price is creating extreme hardships for the middle and lower class families in this nation. Uncontrolled inflation dominates the markets and economy of this nation. Its cobra clutch is spreading all over our country like wildfire. Its rate is unstoppable. Description of problem. According to the Oxford Dictionary, the word inflation means a general rise in prices caused by increase in the supply of money, credit, etc. Graphically, it presents the log of annual average consumer price index plus one in various graphs (Beck and Rahman, 2006). Generally, it indicates a sudden rise in product prices. Usually, it is harmful for consumers, especially families. People appreciate and enjoy stable prices because it lets them decide when, where, and how to spend without much fuss. Sudden and uncontrolled inflation disrupts consumer expectations and creates problems for consumers regarding what to spend money on. Most of our Bangladeshi families are either poor or middle class. The farmer and other villagers compose majority of our population. In fact, 78.65% of the countrys population is rural (Crowther & others, 2004). If the farmers fail to buy their daily necessities, then one way or the other the rest of the Bangladeshi community suffers. Agriculture is the backbone of this country. Inflation tends to hinder the lives and livelihoods of farmers via increased and unstable product prices. As a result, those poor farming families cannot provide significant amount of work and profit to help the rest of the population to survive. Rickshaw or taxi drivers suffer from inflation too. They cannot provide food or other daily necessities for their families and for themselves. Some die, other struggle to work daily and earn money. In fact, all the working classes are affected by inflation. For example, many countries have suffered economically because the working classes suffered because of inflation. For example, in the 1970s, inflation hampered American factory workers from buying daily

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essentials (Jones, 2006). As result, many workers suffered mentally and physically, leading to the closing of many factories. Azerbaijan suffered extreme inflation after the collapse of Soviet Union (Jones, 2006). This led to consumer prices going sky-high and the living standards for majority of population declining drastically (Jones, 2006). In an economy, working class families struggles sooner or later affect the upper class families. At present, the price instability extent has surpassed all apprehensions. Even though inflation rates have been in the single digits in this nation over the last couple of years, this year has faced an immense jump in product prices and government deficit has been relatively high in international comparison (Thorsten and Rahman, 2006). The newspaper Daily Star (2007) stated that the Dhaka University is facing rioting students and families because of the inflating course fees. Even here we can see inflation-related troubles through Dhaka University (the producer), their students (the consumers), and education (the product). Effects of problem. Inflation leads to many negative effects. At present, Bangladeshi families and consumers are suffering from some significant problems stimulated by pricing instabilities. First of all, many lower and middle class families are struggling with increased prices of foods; especially the daily Bengali items (See Chart 1 in Appendix). One can hear and see this problem whenever one listens to the news on TV or reads newspapers. Ask anyone on the roads, they will give their immediate account of food crisis. One of my uncles, Bhuyia Iqbal, said that: Oh Ridoy, dont ask me! Whenever I go to a grocery store or bazaar, I prepare myself beforehand to fight! The prices of foods are unbelievably high. They are simply unbearable! Even worse is the fact that, stores have varying prices for every food. Some prices vary by 20-30 taka; however, almost all the prices are extremely high compared

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to maybe a year ago. I have not been able to buy a box of candy and some chicken tikka for my kids mainly because of unsatisfactory and torturing costs (Personal interview, December 2007). Prices of daily essentials such as writing utensils, kitchen utensils and even clothes have not escaped the troubling pitfall of inflation. Many families failed to buy desired clothes for special/religious events such as Eid or wedding ceremonies. I heard many ladies at a wedding complaining about the dress prices. In fact, when my dad and I went to New Market to buy a new pair of dress for Eid day, the shockingly high prices forced both of us to buy third/fourth choice clothes. A certain fatuas cost shot up from 550 taka at the beginning of 2007 to700-800 taka during the Eid season. When I cheeked that fatua and few others costs on November, I realized the prices were still comparatively high at 650-700 taka per store. Those fatuas were not from super-expensive brands as well. Among all these incredibly high prices, increased stationery prices hit me the hardest. Mechanical pencils that cost 30 taka some months ago now cost 40 to 45 taka. Every one of those pencils prices, depending on brand name, has risen by 10 to 15 taka. Many families are thus failing to provide the writing utensils because of increased prices. Ten to twenty taka increase does not sound too large an increase, but then, all these add up at the end of the day. Pencils, which are small in sizes, have small prices, and so small inflation of their prices results in big problems for consumers, especially for heads of households and their children. Secondly, inflation leads to unequal distribution of wealth. The poor people manage to buy little amount of essentials, but the rich somehow manage to fulfill their daily needs by buying basically whatever they need. The rich-poor scale hits extreme levels, and the poor families barely survive to eat another day (Badrul, 2007). With the price of one kilo rice

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around 20 taka (Badrul, 2007), many poverty-stricken men are struggling to provide for their families. Future effects of pricing instabilities. The effects of inflation do not end here. The future withholds some extremely worrisome effects. One problem will be more food crises for families. According to The Daily Star: The central bank has projected that inflation rate will rise by 1.3 percentage point in the current fiscal year compared to that of last year due to the rise in prices of food and non-food items in the global market. The article also states that the prices of commodities that Bangladesh imports such as rice, wheat, and edible oil are not likely to come down in the first half of next year (BB predicts inflation rise, 2007). Hyperinflation can easily occur from pricing instabilities. This is a situation where inflation increase by several hundred percent a year. Families will definitely suffer from this. For example, beaten and war stricken Germans were forced to pay heavy reparations to the victorious countries. At that time (November 1923), 4.2 trillion marks equaled one US dollar! The paper which printed the mark, valued more than the mark (Pennington, 2000). An interesting problem that usually never gets notice in this country is the decreasing of the value of real wages. The future can easily host massive consumer dissatisfactions. For example, suppose a man earned $20, 000 in 1979 and $47, 000 in 2000. Even though the wage for 2000 is greater than the 1979 wage, the wage was actually an adjustment with inflation. His purchasing power will remain the same (Pennington, 2000). Another effect that would probably occur sooner or later is riots. Already, there have been major ones throughout the world this year. Bangladesh has hosted some minor ones but

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nothing major has happened yet. The banker Mohammed Badrul Ahsan (December, 2007) wrote in The Daily Star about the following clashes in some foreign countries, thanks to pricing instabilities: Early this year, 75 thousand trade unionists and agricultural workers joined in the biggest demonstration in the history of Mexico City. They rioted against the rapid rise in the cost of tortillas. Then in August, hundreds of shepherds clashed with police in Jordan to protest against an increase in the price of animal feed. Recently, rise in food prices also led to protests and demonstrations in Yemen and many African countries. On the other hand, producers would face collapsing businesses when families dont come to buy products. One thing to remember is that rich families and bachelors make up less than half of this nations population. Middle and lower class families compose the main sector consumers in this economy. There could be a situation where majority of the consumers stop coming to sellers. Higher inflation rates tend to hurt businesses because inflation increases their costs of production. Businesses that can pass the additional costs on to buyers can survive, but consumers could easily refuse to pay these higher prices. This will lead to economic disasters in which both sides of the coin (the producers and consumers) will suffer harshly. However, it indicates a worst case scenario, so the possibilities are lean. The causes and reasons behind this problem. There are many substantial reasons behind the presence of price instabilities. The basic reason (as for all other economical problems in this country) is corruption, but that is too broad and general. There are some reasons that branch out from corruption and specify the real causes for inflation. Some of the reasons are lack of strong monitoring, undecided governmental roles,

Instability corrupt producers and governmental officials, limited telecommunication networking, transportation problems, and interestingly, faster economic growth.

Historical background. After the 1971 war, Bangladesh faced its first major inflation problem in the years of 1972-1975 (Hossain, 2001). The main cause at that time was the war which struck the economy badly. Lots of money had to be used to rebuild the war struck economy and country. This included money for housing of around 7.5 crore people (Haque and Nahar, 2002). In fact, the early 1970s inflation resulted in a major famine in 1974 (Hossain, 2001). From that decade onwards, sudden increases in inflation regularly hit Bangladesh. Sometimes, natural disasters commenced it; however, mainly it has been the system itself. Recent reasons and events. Lack of strong monitoring or government control. This country never had strong monitoring systems dedicated to inflation. Storekeepers and producers charged whatever prices they wanted. Customers could not prevent the injustice thrown at them. The Bangladeshi satellite channel, Channel I, once showed that customers faced unfair prices from the shopkeepers in a bazaar. The prices offered by the sellers were not the ones put on the so called price-setting board at the end of the bazaar. In fact, some of the prices were erased illegally and reset by the shopkeepers. One problem growing from poor monitoring system is transportation. Transportation works like a secret enemy to stable prices in this country. Many families dont realize that there exists a large degree of cheating and carelessness in transportation of goods from one place to another. Late arrival of goods tend to increase prices; however, very few transporters or drivers try to solve it. Instead, they all blame each other or the underdeveloped roads for tardiness. Malfunctioning vehicles rarely receive timely inspections. The most pathetic part concerning

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transportation problems is charging of unnecessary or unfair money when crossing certain roads. This increase price value of products anyways. One the other hand, lack of strong monitoring hinders the development of telecommunication. Telecommunication, a fast improving sector of Bangladesh, is only helping families communicate through cellphones or radio programming. There never has been an urgency to use telecommunication networking as a method of alleviating communication problems regarding product transports or distribution. If this sector is exclusively used in goods distribution, then many sellers will fail to inflate prices, using time and travel problems as an excuse. Telecommunications seems to have skyrocketed in recent years but only in the field of entertainment. The real help of this field is still missing. Throughout the years, lack of strong monitoring has led the government to act as an arbiter and operator rather than a facilitator (Beck & Rahman, 2006). The government seems to focus too much on the banking sector rather than having an equally spread focus on all the financial sectors. Some sectors have been totally privatized and face uncontrolled unfair price settings. To make the situation worse, Bangladesh has faced many corrupt and selfish government officials in the past and present (Ahsan, 2007). These politicians take advantage of greedy businessmen and vice versa, affecting the economy of this country as well as the product prices drastically. Faster economic growth can lead to inflation. Interestingly, economic growth sometimes leads to inflation. Bangladesh is a classic example. Moderate inflation is helpful to growth, but faster economic growth feeds back into inflation (Mallik & Chowdhury, 2001). Thus, Bangladesh, like its other sub-continental partners, is under the domain of inflation. This idea is a debated and controversial thought, but one cannot deny the correlation between

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economic growth and inflation. Our governments so far have failed to recognize this problem fully, and thus, no balancing factor was ever created. Summary of causes and effects. Instability in prices is creating extreme hardships for families. The current situation is hurting most of the families in Bangladesh. Poor monitoring, transportation problems, corrupt officials, and unbalanced economic growth are causing inflation. Natural disasters have also been a stimulator of inflation but they are occasional problems. Basically, the whole monitoring system has failed to control pricing instabilities. Quick steps are needed to control inflation which is somehow linked to all other problems in this country, whether as a factor or product.

The solution Even though inflation looks uncontrollable, there are many ways to at least hold back this problem if not overcome it. The solutions will require perseverance and immediate action but are worth trying. The main solution is the following: the government needs to take more significant steps and regulations for the reduction of inflation. The best steps at present are the following: the improvement of telecommunication networking; constant and consistent creation of equilibrium between supply and demand; and much better patrolling of product prices and distribution. All of these require extreme levels of patience and perseverance, as well as expenses. In fact, many critics and skeptics will go against these solutions. However, these steps, if applied correctly and consistently, will endure for long time and help the economy. The improvement of telecommunication networking.

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Telecommunication is growing significantly in Bangladesh. Each year, new mobile companies enter the market. The existing ones add or modify their programs of advertising and engineering. However, most of the improvements in telecommunication have been done to promote entertainment and city life. Radio, television, and mobile networking provide the people with bountiful opportunities in improving economy. If the telecommunication networking could be spread to the villages and rural areas of this country, then many factors of inflation and family hardships can be solved. Poor people are usually uneducated and dont know how to gain their rights. Corrupt sellers tend to deceive them by charging high prices that cost much lower. As a result, the poor and illiterate citizens of this nation are deprived of the proper products and also lose significant portions of their income. If some type of mobile networking could be used to let those poverty stricken people know the right prices, then much of the fake pricing applied on poor people can be overcome. Mobile companies should be enforced by the private sector or the government to spread their networks in deep villages of Bangladesh as well. Networks can be used in transportation development through information on timely positioning systems and emergency news supply. For instance, if a truck malfunctions on the way and struggles to carry certain edible products to a place, then mobile networks can help by informing a truck station nearby to carry the products of the first truck to its destination. Radios can also host programs based on the prices of products. Small radios worth around taka 100 could be sold in villages throughout Bangladesh at cheaper costs to help the poor keep up to date with the market. The government officials should try to provide at least one free radio to each village and poor family so that the families dont face fake fixed prices. This will definitely reduce inflation among poor families.

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Despite of the potential of this solution, some skeptics might point out one weakness: the lack of resources to help this method. Bangladesh is a developing nation and most of its villages and villagers are too poor and illiterate to help in this method. Telecommunication networking requires group work from all those who cover the network. That includes the locals as well. On the other hand, network companies want as much profit as possible in a little time. One does not expect any company too spend so much money on helping villages countrywide. Lots of time would be lost, too. They would rather lessen incoming/outgoing call charges to attract greater number of consumers than present. However, if the government officials enforce a regulation on companies to help the poor as to a directed extent, than the network companies should be able to do so. If some extra money is spent on telecommunication network spreading, then it not only will improve the lives of the villagers but will boost the businesses as well. After all, villagers are consumers as well. Supply and demand equilibrium needs to be created in a better and way. Wages should be increased accordingly. No matter how much prices or demand increases, employees receive the same amount of wages as they used to. This puts them behind in the race with inflations. Many middle class families become poorer because of this. To ensure the proper and deserved amount of income for every worker, rich employers should be forced to pay higher wages to their employees. This will help the middle class keep up with the growing economy. One problem that exists with this step is the enforcement itself. The employers keep their workers under certain terms and under their control. In a sense, it becomes unfair toward the bosses. However, the bosses must understand that if the workers end up leaving his company, then he will be one to suffer. That is why, increasing wages will fulfill

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worker expectations and boost a companys morale. The government should start programs to oversee the equilibrium between worker and wages to help ensure it as a part of improving economic equilibrium. The improvement of employment in areas of agriculture, tourism, and handicrafts. The government and the private sector have been overlooking the power and potential that the craftsmen of this country possess. Tourism has been receiving attention recently, but it still requires greater exposure and promotion. Agriculture, the main source of employment in this country, does not face a lack of employees, but it has not developed to the extent it should. If the government puts emphasis on handicrafts by promoting this sector to greater heights and offering better income to craftsmen, then the economy will improve. The private sector should inspect and speculate the tourism sector with more workers and promote it in a stronger way. Agriculture needs improved modern day techniques and instruments to provide greater amount of food in quicker time. Employing skillful men in these areas will reduce unemployment and help them earn the money required to overcome inflation. All these sectors will help exportimport which in turn will provide the currency required to resist inflation. The government can definitely provide improved farming methods to farmers so that plentiful amounts of food are produced, so that inflation does not occur from undersupply of products. All families will benefit form this step. The main problem with this step is expenses. Improving and providing most of the time means lots of money spending. But one cannot forget that even if the government and private sector spends huge sums of money in these three sectors, the returns will be even greater. In fact, if the handicrafts of this country could be promoted to greater extents elsewhere or if crafted goods are exported abroad in greater numbers, than the profits will be tremendous. It

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might hurt the economy in few areas because of expenses, but the outcome will be a huge success. Better patrolling of product prices and distribution. Recently, many news channels have shown that shopkeepers are intentionally increasing prices of goods above the regulated prices. In the other hand, TV news channels have also shown the increasing number of black markets throughout this country. Special Forces directed specifically in monitoring prices are required to enforce laws against these problems. Better patrolling of prices will help the middle and lower class families purchase their daily essentials properly and satisfactorily. For example, few days ago, a monitoring unit (special force to inspect and supervise prices) was launched in Chittagong to check the costs of family essentials (Monitoring cell, 2007). Some critics might point out that special forces require a combo of high skills, strong character, and good education. It is difficult to find such ideal men for monitoring jobs. If they turn out to be corrupt, then everything is ruined. These force members tend to charge large amount of wages as well. The response to this problem is simply this: the sector from which the force is to be formed, whether police, army or, some random group of people, should train and educate the force members and then direct them to run the monitoring force. This might take some time but in the long run, it will work. Summation of solutions Bangladesh is a developing country which requires its government to take more regulated and significant steps to overcome uncontrolled inflation. This will require stronger monitoring of product prices, better supply and demand equilibrium, and greater telecommunication networking. All these solutions have problems regarding expenses and

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time, but all of the solutions are powerful enough to work in long run if the government and its officials are willing to sacrifice some selfishness. After all, majority of families are facing extreme hardships because of inflation, and it is the responsibility of the government to oversee the families satisfaction. 3895 words

Personal Response (Conclusion) Personally, I know inflation is increasing at a steady rate. My family, like many other families, is facing its grip. Its ominous net is spread all over the country. In fact, many consider inflation to be one of the top three economical drawbacks of Bangladesh. However, when there is a problem, there is always at least one solution to it. Controlling inflation would prosper many aspects of our lives such as housing, purchasing, and employment. Instant action is required to stop this perilous train known as inflation. You, as a member of this nation, can help control inflation in significant ways as well. First of all, pay your taxes properly. Your money would definitely help the government use it

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on improving of inflation monitoring. Secondly, dont charge unfair prices to buyers if you are a seller. I know we all want profit, but the fact is, if you become greedy, then the consumers will walk away from you. Last but not the least, let there be no misuse of property or unfairness around you. Whenever you see immoral environment around you, take action immediately or call for help. Dont let crime dominate you. Most of all, be optimistic. As Bernard M. Baruch once said, Inflation is the most important fact of our time, the single greatest peril to our economic health. And for that reason, we all will have to fight against this economic disease. Remember, there are just two ways of facing a problem: you either tolerate the problem and move on or terminate it once and for all. Inflation definitely needs to be terminated. At the end of the day, if there is a will, then there is a way of achieving it. Together, we can and we will make a difference.

References Al. Marhubi, Fahim A. (2000). Income and inflation: Cross country evidence. Contemporary Economic Policy, 18 (4), 428-439. Retrieved November 29, 2007 from World Wide Web: http://www.questia.com Badrul, Mohammed Ahsan. (2007, December). Back against the wall. The Daily Star, XVII (311). pp. 10 BB predicts inflation rise. (December, 2007). The Daily Star, XVII. pp1

Instability Beck, Thorsten, and Rahman, Md. Habibur. (2006, February). Creating a more efficient financial system: challenges for Bangladesh. Worldbank Wbsite. 1-61. Retrieved November 27, 2007 from World Wide Web: http://siteresources.worldbank.org/DEC/Resources/ Creating_a_More_Efficient_Financial_System.pdf

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Crowther, David, Khondoker, Bazlul, Zahir, Sajjad, & Gajewski, Greg. (2004, September). Estimating the impacts of the Jamuna Bridge on poverty levels in Bangladesh using SAM GCE models. The Louis Berger Group, Inc. Retrieved January 5, 2008, from the World Wide Web: http://www.louisberger.com/berger/macro-iqc/papers/jbpf.pdf. Chittagong correspondent. (2007, November). Monitoring cell launched in Ctg to check essentials prices. The Daily Star, XVII (311), pp. 8 Engel, Charles, & Rose, Andrew. K (2002). Currency unions and international integration. Journal of Money, Credit & Banking, 34, (4), (57 paragraphs). Retrieved November 29, 2007 from World Wide Web: http://www.questia.com Hossain, Ahkter. (2001). Professor Amartya Sen And The 1974 Bangladesh Famine. A Journal of Bangldesh, 38-60. Hoque, Shamsul M., and Nahar, Shahabudin. (2002). Social Science. Dhaka: National Curriculum and Textbook Board. Hussain, Delawar. (2007, December). Bachor Jure Beshamal Bazaar. Dainik Shomokal. pp. 10. Jones, Sydney L. (2006). Inflation and Deflation. Microsoft Student 2007. Micorosft Corporation. (CD-ROM: 70.00) Mallik, Girijasankar, & Chowdhury, Anis. (2001). Inflation and Economic Growth: Evidence from Four South Asian Countries. Asia-Pacific Development Journal, 8 (1).

Instability 123-133. Pennington, Robert L. (2003). Economics. Austin: Holt, Rinehart, and Winston.

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Shiraj, Shaik. (2007, December). Channel I Evening News [Television Broadcast]. Dhaka Channel I Pvt. Limited. Wahid, Abu N.M. (2007, November). Drobbo Muller Urdhagoti Ebong Moddhashottabhogi. Daily Shomokal, 3 (243), pp. 3

Appendix Chart 1 Comparison Chart of Food Prices in 2006 and 2007 Price on December Price on December Percent Increase 2006 (in BDT) 2007 (in BDT) (%) 22-26 34-80 54 18-19 27-28 48.5 35-38 88-92 180-190 46 44 29

Name of Item Rice Rice (thick) Flour 24-26 Soyabean 61-63 Oil Beef 140-150

Instability Farm egg Potato Onion 15-17 14-15 13-15 18 16-20 18-32 9 24 78

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(Hussain, 2007).