Inflation Revised

ECN 202 MACROECONOMICS (INFLATION)
Independent University, Bangladesh

Chittagong
COMPARATIVE ANALYSIS
OF
BANGLADESH INFLATION TREND
ECN202
SUBMITED TO:
COURSE INSTRUCTOR: Mr. Syed Manzur Quader
COURSE NAME: MACROECONOMICS
COURSE ID: ECN202
SUBMITED DATE: 23.03.2008
SEMESTER: SPRING 2008
SUBMITED BY:
NAME ID
Md. Mamun Serajul Mazid 0511077
Md. Tariqul Islam 0521035
Md.Abdul Motalabe 0521041
Md. Ismail Hossain 0521051
Mohammad Mominul Islam Chowdhury 0521069
1
Date: 23rd March, 2008
Mr. Syed Manzur Quader

Course Instructor
ECN-202
Independent University Bangladesh
Chittagong Campus
Jamal khan, Chittagong
Re: Submission of Report
Sir,
We are very glad to submit report that you assigned us to do as a part of our course our
Assignment was on the “What are the sources of inflation, and how can it is kept under
control”. It would have been impossible to execute this report without your continuous
support and we are very grate full for your enduring cooperation.
We had a lot of memorable and valuable experience while conducting this report which
We are confident that will help us in the real field.
Therefore we will highly appreciate it if you would kindly accept our report and pardon
any undue inconveniences.
Yours Sincerely,
Md. Mamun Serajul Mazid 0511077

Md. Tariqul Islam 0521035
Md.Abdul Motalabe (JHAMELA) 0521041
Md. Ismail Hossain 0521051
Mohammad Mominul Islam Chowdhury 0521069
2
Acknowledgement
At the very outset, we would like to give our deep gratitude, compliments and heartfelt
thanks to our respectable course instructor who has always been supportive and
inspiring. He has also bridged up the gap between the theory and practice by his
relentless follow up and guided us through a difficult time when we were trying to
prepare this research report.
We also would like to demonstrate our heartiest appreciation all respondents who
directly and indirectly participated in the making of this project. Without their help we
could not make such big report.
If this report makes the honorable instructor satisfied then it would be a great
achievement for us and we would think that our hard work has been worth of whatever
we did.
Numerous thanks to Almighty Allah for showing his blessing on us in every way.
3
History of inflation
In human history inflation has not been an important part of economic life. Before 1930,
prices were as likely to fall as rise during any given year, and in the long run these ups
and downs usually cancelled each other out. By contrast, by the end of the 20th
century, 60-year-old Americans had seen prices rise by over 1,000% during their
lifetime. The most spectacular period of inflation in industrialised countries took place
during the 1970s, partly as a result of sharp increases in oil prices implemented by the
Opec Cartel. Although these countries have mostly regained control over inflation since
the 1980s, it continued to be a source of serious problems in many Developing
Countries.
Inflation
Rising prices, across the board. Inflation means less bang for your buck, as it erodes
the purchasing power of a unit of currency. Inflation usually refers to consumer prices,
but it can also be applied to other prices (wholesale goods, wages, assets, and so on).
It is usually expressed as an annual percentage rate of change on an index number.
Milton Friedman once said, “Inflation is always and everywhere a monetary

phenomenon”.
Keynesian economists believe that, “inflation can occur independently of monetary
conditions”.
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Effects of inflation
A small amount of inflation can be viewed as having a beneficial effect on the economy.
One reason for this is that it can be difficult to renegotiate prices and wages. With
generally increasing prices it is easier for relative prices to adjust. Many prices are
"sticky downward" and tend to creep upward, so that efforts to attain a zero inflation rate
(a constant price level) punish other sectors with falling prices, profits, and employment.
Efforts to attain complete price stability can also lead to deflation, which is generally
viewed as a negative by Keynesians because of the downward adjustments in wages
and output that are associated with it.
• With inflation, the price of any given good is likely to increase over time, therefore
both consumers and businesses may choose to make purchases sooner than later.
This effect tends to keep an economy active in the short term by encouraging
spending and borrowing, and in the long term by encouraging investments. But
inflation can also reduce incentives to save, so the effect on gross capital formation
in the long run is ambiguous.
• Inflation is also viewed as a hidden risk pressure that provides an incentive for those
with savings to invest them, rather than have the purchasing power of those savings
erode through inflation. In investing, inflation risks often cause investors to take on
more systematic risk, in order to gain returns that will stay ahead of expected
inflation.
• Inflation also gives central banks room to maneuver, since their primary tool for
controlling the money supply and velocity of money is by setting the lowest interest
rate in an economy - the discount rate at which banks can borrow from the central
bank. Since borrowing at negative interest is generally ineffective, a positive inflation
rate gives central bankers "ammunition", as it is sometimes called, to stimulate the
economy. As central banks are controlled by governments, there is also often
political pressure to increase the money supply to pay government services, this has
the added effect of creating inflation and decreasing the net money owed by the
government in previously negotiated contractual agreements and in debt.
For these reasons, many economists see moderate inflation as a benefit; some
business executives see mild inflation as "greasing the wheels of commerce." But other
economists have advocated reducing inflation to zero as a monetary policy goal -
particularly in the late 1990s at the end of a long disinflationary period, when the policy
seemed within reach; and some have even advocated deflation instead of inflation.
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• In general, high or unpredictable inflation rates are regarded as bad: Uncertainty

about future inflation may discourage investment and saving.
• Inflation redistributes income from those on fixed incomes, such as pensioners,

and shifts it to those who draw a variable income, for example from wages and
profits which may keep pace with inflation.
• Debtors may be helped by inflation due to reduction of the real value of debt
burden.
• Inflation redistributes wealth from those who lend a fixed amount of money to
those who borrow. For example, where the government is a net debtor, as is
usually the case, it will reduce this debt redistributing money towards the
government. Thus inflation is sometimes viewed as similar to a hidden tax.
• A particular form of inflation as a tax is Bracket Creep (also called fiscal drag). By
allowing inflation to move upwards, certain sticky aspects of the tax code are met
by more and more people. For example, income tax brackets, where the next
dollar of income is taxed at a higher rate than previous dollars, tend to become
distorted. Governments that allow inflation to "bump" people over these
thresholds are, in effect, allowing a tax increase because the same real
purchasing power is being taxed at a higher rate.
• International trade: Where fixed exchange rates are imposed, higher inflation
than in trading partners' economies will make exports more expensive and tend
toward a weakening balance of trade.
• Shoe leather costs: Because the value of cash is eroded by inflation, people will
tend to hold less cash during times of inflation. This imposes real costs, for
example in more frequent trips to the bank. (The term is a humorous reference to
the cost of replacing shoe leather worn out when walking to the bank.)
• Menu costs: Firms must change their prices more frequently, which imposes
costs, for example with restaurants having to reprint menus.
• Relative Price Distortions: Firms do not generally synchronize adjustment in

prices. If there is higher inflation, firms that do not adjust their prices will have
much lower prices relative to firms that do adjust them. This will distort economic
decisions, since relative prices will not be reflecting relative scarcity of different
goods.
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• Rising inflation can prompt trade unions to demand higher wages, to keep up
with consumer prices. Rising wages in turn can help fuel inflation. In the case of
collective bargaining, wages will be set as a factor of price expectations, which
will be higher when inflation has an upward trend. This can cause a wage spiral.
In a sense, inflation begets further inflationary expectations.
• Hyperinflation: if inflation gets totally out of control (in the upward direction), it
can grossly interfere with the normal workings of the economy, hurting its ability
to supply.
Measures of inflation
Inflation is measured by calculating the percentage rate of change of a price index,

which is called the inflation rate. This rate can be calculated for many different price
indices, including:
1. Consumer price indices (CPIs) which measure the price of a selection of goods
purchased by a "typical consumer." In the UK, an earlier version of the CPI was
called the Retail Price Index (RPI).
2. Cost-of-living indices (COLI) are indices similar to the CPI which are often used
to adjust fixed incomes and contractual incomes to maintain the real value of
those incomes.
3. Producer price indices (PPIs) which measure the prices received by producers.
This differs from the CPI in that price subsidization, profits, and taxes may cause
the amount received by the producer to differ from what the consumer paid.
There is also typically a delay between an increase in the PPI and any resulting
increase in the CPI. Producer price inflation measures the pressure being put on
producers by the costs of their raw materials. This could be "passed on" as
consumer inflation, or it could be absorbed by profits, or offset by increasing
productivity. In India and the United States, an earlier version of the PPI was
called the Wholesale Price Index.
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4. Commodity price indices, which measure the price of a selection of

commodities. In the present commodity price indices are weighted by the relative
importance of the components to the "all in" cost of an employee.
5. The GDP Deflator is a measure of the price of all the goods and services
included in Gross Domestic Product (GDP). The US Commerce Department
publishes a deflator series for US GDP, defined as its nominal GDP measure
divided by its real GDP measure.
6. Capital goods price Index, although so far no attempt at building such an index
has been made, several economists have recently pointed out the necessity of
measuring capital goods inflation (inflation in the price of stocks, real estate, and
other assets) separately. Indeed a given increase in the supply of money can
lead to a rise in inflation (consumption goods inflation) and or to a rise in capital
goods price inflation. The growth in money supply has remained fairly constant
through since the 1970's however consumption goods price inflation has been
reduced because most of the inflation has happened in the capital goods prices.
7. Other types of inflation measures include:
Regional Inflation The Bureau of Labor Statistics breaks down CPI-U calculations
down to different regions of the US.
Historical Inflation Before collecting consistent econometric data became standard for
governments, and for the purpose of comparing absolute, rather than relative standards
of living, various economists have calculated imputed inflation figures. Most inflation
data before the early 20th century is imputed based on the known costs of goods, rather
than compiled at the time. It is also used to adjust for the differences in real standard of
living for the presence of technology. This is equivalent to not adjusting the composition
of baskets over time.
Above all of the measurement two widely known indices for which inflation rates are
reported in many countries are the Consumer Price Index (CPI) and the GDP deflator.
8
Historical Trends of Inflation in Bangladesh
Bangladesh is the youngest country in the South Asian region. Following the launching
of a series of comprehensive stabilization measures, the economy of Bangladesh
mostly restored both robust economic growth and macro-economic stability in early
1990s from the backdrop of the deep macro-economic crisis of the period since
independence (Bhattacharaya, 2004). In particular, the economy has experienced
accelerated economic growth during the early 1990s in comparison with the 1980s.
However, after that period, the economy experienced most severe exigency states like
increasing inflationary pressures, deteriorating government’s budgetary balances and
decreasing foreign exchange reserves (Mahmud, 1997).
During the first half of the 1980s the country experienced a double-digit episode of
inflation while the growth rate of GDP was below 4-percent level as illustrated in Figure-
1. The GDP growth rate declined moderately during the second half of 1980s when
inflation rate gradually decreased to below 8-percent. However, a moderate rate of
inflation and an increasing rate of GDP growth are observed throughout the 1990s.
Throughout the first half of the 1990s, inflation rate was, on average, 5.37 percent, while
GDP growth rate was 4.06 percent. Although inflation rate increased, on average, to
5.52 percent in the second half of the 1990s, the growth rate of GDP continued to
increase. The increasing trend of inflation rate during the latter half of 1990s had been
corrected since the beginning of the new decade after 1990s and was observed at 4.14
percent, on average, during 2001 to 2005, when growth rate of GDP was, on average,
5.19 percent.
Figure 1: Five Year Average GDP Growth and Inflation Rates (1981-2005)
Source: Data collected from BBS (2000, 2001, and

2005).
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Figure 2 depicts the historical trends of inflation rate and real GDP growth rate of
Bangladesh during the period of 1981 to 2005. Although it is unwise to conclude
anything simply on the basis of a visual inspection of Figure 2, however, it illustrates
more or less an inverse relationship between rate of inflation and GDP growth rate in
Bangladesh throughout this period.
Figure 2: Inflation and Real GDP Growth Rates (1981-2005)
Source: Data collected from BBS (2000, 2001, and 2005).
Trends in Inflation
Bangladesh has experienced sustained inflation hovering in the 1.94 to 8.66 per
cent range during FY90-FY06,. The inflation rate, on average, was 5.17 per cent
during the last one and a half decade; the latter half of 1990s experienced higher
than average inflation as compared to early 1990s and the beginning of the new
decade. One of the most debated current issues in Bangladesh is to find out why
inflation fluctuates and how to control it. There has been a general consensus
that supply side bottlenecks, growth in money supply, imported inflation through
depreciation of the exchange rate and inflationary expectations have been
responsible for the persistence of inflation in Bangladesh. Observing segregated
(food and nonfood) data, the historical trend of inflation indicates that inflation in
Bangladesh varies directly with food prices. That is, overall inflation of the
country is high when food inflation is higher and vice versa. This is due to the fact
that the weight of food items in the overall CPI, on average, is more than 58 per
cent. However, it may be noted that higher non-food inflation was also observed
10
in the said period and contributed jointly with food inflation to the persistent
overall inflation.
Food and non-food inflation averaged 5.27 per cent and 5.11 per cent
respectively during the last one and half decades. The periodical analysis
suggests that food inflation was higher than average in the second half of 1990s,
whereas non-food inflation was higher in the early 1990s. Shortages in
agricultural production due to damage of 1998 flood were the basic reason for
higher food inflation in the latter half of 1990s. Non-food inflation was mainly
driven by the prices of imported fuel and rise in transport and communication
charges.
A few observations are also revealed if inflation is analyzed from the rural-urban
perspective. Both in rural and urban areas, food inflation dominate over non-food
inflation over the study period except for a few years in the early 1990s.
Interestingly, rural inflation dominates over urban inflation over the period in the
sense that overall inflation of the country varies directly with the change in rural
inflation. When rural inflation is higher, national inflation is also higher and vice
versa.
An important inference can be drawn from the above analyses; food and rural
inflation have very strong impact on national inflation. Since food items dominate
other components in terms of relative weights in the overall CPI and since most
people live in the rural areas, consumption of food is higher in the rural areas
than in urban areas. This might be the reason that food demand is higher in rural
areas, creating more food inflation there. Thus inflation is more apparent in the
food consumption for rural areas. It clearly implies that if the policy makers want
to control the overall inflation of the country, it will be a prudent policy if food
inflation in rural areas can be controlled.
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Factors Influencing Inflation
Historically, inflation rates in Bangladesh have stayed at a modest level,

generally, well under 10 per cent.
In the early 1990s, the average inflation rate was 5.20 percent; ranging between
2.71 per cent (FY93) and 8.19 per cent (FY95), Except for the first two years
during the abovementioned period, inflation rate varied mainly with growth in
nominal money supply. Besides money supply growth, a close association of
inflation with change in the index of prices of agricultural production and change
in the index of prices of industrial production is observed. However, moderate
economic growth and modest change in the wage index contributed to the
relatively low rate of inflation (i.e., lower than 5 per cent) in four out of six years.
Substantial depreciation in the exchange rate in FY91, higher money supply

growth and lower deposit rate in FY95 contributed to the comparatively higher
inflation rates in these two years. It may be significantly noted that the said period
also marked a major drive towards economic liberalization of the economy. Thus,
integration with the world economy could be one of the major factors in
explaining reasons of inflation in Bangladesh.
Figure 3: Changes in Inflation Rates with Agriculture and industrial Prices: FY90-
FY06
Notes: Agriculture price rate is defined as the change in yearly index of wholesale prices
of agricultural products, whereas industrial price rate is defined as the change in yearly
index of whole prices of industrial products.
Source: Statistical Year Book (Various Issues), BBS.
During the second half of 1990s (FY96-FY00), average inflation rate was higher
in comparison with inflation rates during FY90-FY95. The high inflation rates
during the three years, FY96, FY98 and FY99, in particular, contributed to the
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comparatively higher average inflation during the period. Supply shortages in the
rural areas originating from political instability in FY96 and disruption due to
floods in 1998 caused serious shortfall of food and also hampered all other
agricultural production, which ultimately caused higher inflation rates in these
three years. A lower growth rate, because of lower production and relatively
higher depreciation of the exchange rate due to food imports, also contributed to
the higher inflation rate in the flood affected years. Among other factors, growths
of M2 and inflation rates were actually moving in different directions in this
period. However, Bangladesh has been successful in maintaining comparatively
lower inflation rate, generally under 10 per cent, in the second half of 1990’s. As
a whole, sharp improvements in food supply situation and good monetary
management in the 1990s contributed to a substantial slowdown in inflation to
single digits.
During the first six years of the present decade (FY01-FY06), Bangladesh
economy experienced comparatively low average inflation rates compared to that
in the 1990s, though the trend has been on the up-side. Buffer agricultural
production contributed to lower inflation rates in the three successive years
following floods. However, inflation accelerated to 4.38 per cent during FY03,
compared to 2.79 per cent in FY02, and continued to rise and reach at 7.16 per
cent in FY06. The higher inflation rates during FY03-FY06 are also associated
with higher rates of GDP growth, money supply growth and larger depreciation of
the exchange rate, particularly in the last two years. Exchange rate might have
played a significant role in causing inflation in this period because of the
introduction of flexible exchange rate regime since May 2003. The combination of
flexible exchange rate and further integration with the international trade could
have adversely affected the prices of imported items, which may explain the
overall price index of the country.
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Sources of Inflation in Bangladesh:
Bangladesh has no specific reason of inflation at present. Inflation is increasing more

and more for several reasons. But all reasons are not equally important. Some reasons
influence more and some reasons influence less. Our economists, businessmen and
other involved parties with economics have identified the following reasons of inflation
after the observation of last several months.
1. Labor Cost
Wage, the labor cost, is often seen as the key reason behind cost-push inflation. Wage
increase without any commensurate increase in productivity kicks off a wage-price
spiral, allowing for sustained inflation. Analysis of the movements of nominal wage rate
inflation generally gives an idea about the labor cost scenario. The time path of the
nominal wage inflation portrayed in Figure-1 suggests that in Bangladesh, the wage
inflation has been pretty stable at above 5 percent per annum with some short-term
fluctuations over the period from July ‘03 to June ‘06. Under the assumption of little or
no improvement of workers’ productivity growth, wage inflation at such high level is an
indication of cost escalation over time. However, whether the accelerated cost has
translated into inflation is not clearly observable in the figure. An analysis of the
correlation matrix presented in Box-1 is useful in exploring the precise link between
labor cost and inflation. It is seen from the matrix that wage rate inflation has statistically
significant association only with rural food inflation (coefficient of 0.22) at the 10-
percent level of significance during the period from FY00 to FY06. It, therefore, appears
that wage inflation cannot be a dominant factor in explaining the price behavior in
Bangladesh. This is what one would normally expect in a labor surplus environment.
Figure-1: Labor Cost and Inflation (annualized 3-month moving average)
Source: Bangladesh Economic Review 2005 and BB publications.

2. Import Cost
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Typically import occupies a significant place in the Bangladesh economy, accounting for
as high as above 20 percent or more of GDP in FY06. At the margin, most of the
essential food items (for example, sugar, rice, wheat, onion and edible oil) and, more
generally, machineries, intermediate goods and raw materials used in production are
imported. Cost of imports can, therefore, be expected to have a substantial influence on
domestic inflation directly (through final goods) or indirectly (through intermediate
goods). According to available statistics, import price index (MPI) of Bangladesh has
continuously soared over time which is reflected by an almost straight upward curve in
Figure-2: Import Cost and Inflation (12-month moving average)
Source: Economic Trends, Bangladesh Bank Annual Report and BBS publication.
* M-price index of the year 2005-06 has been estimated.
Figure-2 also depicts the inflation trend. Comparison among the trends in import price
index and inflation provides an observation about the relationship between these
indices. It is seen that although during the period from FY97 to FY01 the relationship is
somewhat ambiguous, the co-movement from FY01 onward appears robust. To verify
this relationship, a separate correlation matrix has been constructed using yearly data
for the period from FY01 to FY06.3 The correlation analysis, presented in the Box-2,
reveals that while the relationships between import price index and categories of non-
food inflation (urban and rural) are insignificant, the former is found to have
economically as well as statistically highly significant association with the categories of
food inflation (urban and rural). The positive association is suggestive of the hypothesis
that the surge in inflation is in part a supply side phenomenon. Evidently, the reasons
for increase in import price are twofold- exchange rate depreciation and increase in
international commodity prices.
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3. Exchange Rate
Exchange rate exerts inflationary pressure mainly via import prices. Historically,
exchange rate in Bangladesh exhibited steady increase over time. The period average
BDT-USD exchange rate was recorded at 61.39 during FY05 in comparison to 40.20
and 50.31 during FY95 and FY00 respectively. The comparable FY06 figure rose to
67.08 as the currency remained under pressure during the first three quarters of the
fiscal year. The inflation in the fourth quarter of FY06 (Figure-1) seems to have been
prompted by a sharp increase in the exchange rate throughout the second quarter and
part of the third quarter of the same fiscal.5 The contribution of the exchange rate
depreciation to inflationary pressure has been attested to by the results of the said
correlation analysis (Box-1). Accordingly, exchange rate is seen to be uniformly
correlated with all categories of inflation (rural food, rural non-food, urban food and
urban non-food) at the 1-percent level of significance, the coefficients being 0.34, 0.29,
0.36 and 0.37 respectively.
4. Oil Price
Being a fundamental input of production, oil constitutes a significant portion of
production cost in every sector of the economy. In spite of some recent adjustments in
the administered price of energy products, much of the increased cost of imported fuel
has not been passed on to end users, especially on diesel and kerosene. However, the
correlation analysis (Box-1) provides evidence that an increase in the diesel price (proxy
for oil price) stimulates inflation via increases in both food and non-food prices in both
urban and rural areas. This is plausibly due to the fact that diesel is used intensively
regardless of sector (food or non-food, urban or rural). The correlation coefficients are
estimated as 0.36, 0.30, 0.41 and 0.32 for rural food, rural non-food, urban food and
urban non-food sector respectively.
5. Supply Shortage
Production in agriculture and fisheries sectors in Bangladesh is still subject to the whims
of nature to a notable extent. It has been claimed that one of the main causes of the
high food inflation throughout the FY05 was poor harvest of Aus, Aman and wheat
crops.6 The yearly production of these three crops went down by 18.12, 14.76 and
22.11 percent respectively in FY05 over the FY04.7 An instance of price hike due to this
fall of production is that the price (per kg) of Aman rice rose within the range of BDT 16
to 19 in FY05 from the range of BDT 14 to 16 in FY04.
6. Market Syndication
Unfair cartel among the suppliers might seriously hamper the course of the economy by
engendering inflation via the creation of a false supply shortage even during a period of
robust growth in production. Such an undesirable event allegedly occurred in FY06
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when the food inflation remained high (7.76 percent) in the same fiscal year despite the
growth in food production (4.49 percent8 vis-à-vis 2.21 percent in FY05). Monopolistic
control of several food items such as sugar, onion, pulses and edible oil by market
syndication seems to have led this situation.9 Obviously such manipulation is a type of
supply side disturbance.
7. Policy Implications
The above analysis carries an important signal for the policy makers. In an effort to
subdue inflation they have to keep a sharp eye not only on the demand phenomena, but
also on the cost behavior in the relevant period. 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.
8. Lower Growth in Agricultural Sector

Production of Aus and Aman fell below last year’s level and reduced rice yield
suggested that the agriculture growth would fall, the central bank said, justifying its
downward revision of growth forecast in its quarterly report. The reduced rice production
indicated a fall in the growth in agriculture, although the central bank had predicted in
October that the growth rate for the fiscal year would lie between 6.6 to 7.1 per cent, the
quarterly said.
9. Trade Deficit
Trade deficit increased by 85 per cent to $3458 million in 2007 from $1865 million in
2000, which leads currency to depreciate, making an impact on inflation.
India and China have been the main sources of import for Bangladesh in the last five
years, which account for 28 to 30 percent of the total import. In the period mentioned,
Indian Rupee and Chinese Yuan have appreciated by 17 per cent and 6 per cent
respectively, while between 2003 and 2007 taka against dollar depreciated by about 19
per cent meaning that cost of import from these countries increased substantially.
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10. Natural Calamity

Floods that hurt crops helped push annual consumer price inflation in Bangladesh to a
13-year high of 10.12 percent in August from 10.10 percent in July, official data showed.
A senior official at the Bangladesh Bureau of Statistics said inflation was driven by an
11.62 percent leap in the cost of food, while prices of non- food items rose 7.99 percent
from a year earlier. Floods since July have killed more than 1,000 people and damaged
rice and other crops over millions of hectares, officials said.
11. Other Reasons

Moreover, Aggregate demand of the economy has increased because of strong export
earnings, expansionary fiscal policy, and hefty inflow of remittances and higher growth
rate of money supply. The year-on-year growth rate of broad money increased from
11.9% in June 2004 to 18.2% in May 2007. This excessive growth in money kept the
real interest rate (actual cost of borrowing after adjusting for inflation) relatively low. The
lower real interest rate in turn has stimulated consumption, investment, and government
spending, resulting in an overall increase in the aggregate demand for goods and
services.
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Bangladesh: Inflation picture in January
Inflation remained stubbornly high at a rate over 11 per cent in the first month of the
calendar year with soaring prices continuing to empty the consumers’ wallets. Point-to-
point inflation was 11.43 per cent in January, (New Age BD) slightly lower than the
December figure of 11.59, according to Bangladesh Bureau of Statistics.
The urban food inflation hit as high as 15 per cent in the month, which was 15.77 per
cent in December while the national food price inflation fell slightly to 14.20 per cent in
January from 14.46 per cent in December.
A senior economist expressed his doubt over the figures at a time when market prices
of food show no sign of coming down.
It is appreciable if the urban food price inflation really comes down, but there remains
doubt, Atiur Rahman said. He also said that, “Hard-pressed people are changing their
consumption patterns or exhausting their savings to cope with the price volatility”.
Global price hikes are beyond the control of the government and there are many things
to be done to ease the domestic supply chain, Atiur said.
‘The government should ensure smooth supply and restore business confidence.’
The distribution chain has been totally broken and the business confidence dipped to its
lowest due to various measures taken by the government, the economist said.
The government could have relocated some funds to boost the agriculture sector, he
felt.
The economist was of the view that the Bangladesh Bureau of Statistics should be
independent of the government to produce quality data.
General inflation in rural areas came down to 11.49 per cent in January from 11.63 per
cent in the previous month while food inflation rose to 13.86 per cent from 13.91 per
cent in December.
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Inflation Data
And
Comparative
Graphic Representation
20
Last 28 years inflation chart of Bangladesh
year Inflation Inflation, year Inflation Inflation,

Index, 2000=100 annual percent Index, 2000=100 annual percent
change change
198 20.879 15.4 1996 80.816 2.5
0
198 23.915 14.5 1997 84.824 5.0
1
198 26.994 12.9 1998 92.160 8.6
2
198 29.567 9.5 1999 97.868 6.2
3
198 32.646 10.4 2000 100.000 2.2
4
198 10.5 2001 101.538 1.5
36.063
5
198 10.2 2002 105.385 3.8
39.732
6
198 10.8 2003 111.034 5.4
44.035
7
198 48.295 9.7 2004 117.810 6.1
8
198 8.7 2005 126.105 7.0
52.513
9
199 58.038 10.5 2006 133.842 6.1
0
199 62.846 8.3 2007 141.276 5.6
1
199 65.124 3.6
2
199 67.064 3.0
3
199 71.189 6.1
4
199 78.879 10.8
5
21
Source: http://www.imf.org/external/pubs/ft/weo/2006/01/data/dbcoutm.cfm?
SD=1980&ED=2007&R1=1&R2=1&CS=3&SS=2&OS=C&DD=0&OUT=1&C=513&S=P
CPIPCH-PCPI&CMP=0&x=36&y=16
Rank of Bangladesh (inflation rate):
Inflation rate (consumer Ran Percent Date of

Year
prices) k Change Information
200
3.10 % 117 2002 est.
3
200
5.60 % 67 80.65 % 2003 est.
4
200
6.00 % 160 7.14 % 2004 est.
5
200
7.00 % 160 16.67 % 2005 est.
6
200
7.20 % 163 2.86 % 2006 est.
7
Source: http://www.indexmundi.com/bangladesh/inflation_rate_(consumer_prices).html
Factors Influencing Inflation (Bangladesh): FY90-FY06
Year Growt Inflation GDP Exchange Lending Deposit Wage

h Rate Growt Rate Rate Rate Rate
Of h Rate Depreciatio
M2 n
FY90 16.88 3.81 3.02 -2.37 14.83 9.09 8.01
FY91 12.14 8.19 3.24 -7.74 14.99 9.22 4.07
FY92 14.08 4.51 4.35 -6.47 15.12 8.78 4.53
FY93 10.55 2.71 4.34 -2.53 14.39 7.22 5.5
FY94 15.43 3.24 4.19 -2.15 12.78 6.05 4.38
FY95 15.96 8.77 4.61 -0.5 12.22 5.09 4.58
FY90-FY95 14.17 5.2 3.96 -3.63 14.06 7.58 5.18
FY96 8.24 5.53 4.47 -1.62 13.41 5.6 6.24
FY97 10.99 3.96 5.21 -4.31 13.69 6.55 4.69
FY98 10.17 8.66 5.34 -6.07 14.02 7.01 7.59
22
FY99 12.81 7.06 4.99 -5.43 14.16 7.24 5.54

FY00 18.62 2.79 6.14 -4.45 13.86 7.29 6.1
FY96-FY00 12.17 5.6 5.23 -4.38 13.83 6.74 6.03
FY01 16.6 1.94 5.41 -6.76 13.75 7.07 3.97
FY02 13.13 2.79 4.36 -6.04 13.16 6.85 5.83
FY03 15.59 4.38 5.33 -0.81 12.78 6.48 10.96
FY04 13.84 5.83 5.82 -1.76 11.01 6.05 6.31
FY05 16.81 6.48 5.93 -6.65 10.93 5.61 5.85
FY06 19.51 7.16 6.71 -9.44 11.51 6.19 6.44
FY01-FY06 15.91 4.76 5.63 -5.25 12.19 6.37 6.58
Notes: GDP base year: 1995-96=100; CPI base year: 1995-96=100, Exchange rate:
Period average
Taka/US$, Deposit rate: Rate of deposit interest on scheduled banks (weighted average
as at end-quarter); Lending rate: Rate of interest on advances by scheduled banks
(weighted average as at end-quarter); Wage Index base year: 1969-70=100.
Sources: 1. Statistical Year Book (various issues), BBS.

2. Economic Trends (various issues), Bangladesh Bank (BB).
23
Trends in Inflation (Bangladesh): FY90-FY06

National, Rural and Urban sector, which also subdivided on General, Food and Non-
Food item.
National Rural Urban

Non- Non-
Year General Food Food General Food Non-Food General Food Food
FY90 3.81 2.54 6.31 3.43 1.98 6.55 4.21 4.05 4.44
FY91 8.19 7.97 8.61 8.76 8.58 9.14 6.43 6.17 6.8
FY92 4.51 4.13 5.2 4.3 3.8 5.33 4.86 5.12 4.5
FY93 2.71 1.84 4.27 2.32 1.52 4.61 2.9 2.76 3.1
FY94 3.24 2.91 3.86 3.47 2.92 3.9 3.11 2.89 3.4
FY95 8.77 9.15 8.07 9.3 9.75 8.42 7.63 7.52 7.79
FY90-FY95 5.2 4.75 6.05 5.27 4.76 6.32 4.86 4.75 5
FY96 5.53 5.86 4.97 5.82 5.77 5.91 4.99 6.25 3.3
FY97 3.96 3.67 4.47 3.67 3.32 4.53 4.47 4.47 4.46
FY98 8.66 10.46 5.99 10.46 11.03 9.06 5.99 6.18 5.54
FY99 7.06 9.3 3.95 9.3 8.96 10.13 3.95 4.33 3
FY00 2.79 2.68 3.08 2.68 2.1 4.09 3.08 2.99 3.28
FY96-FY00 5.6 6.39 4.43 6.39 6.24 6.74 4.5 4.84 3.92
FY01 1.94 1.39 3.05 1.38 1.18 1.89 3.04 3.83 1.13
FY02 2.79 1.63 4.61 1.63 1.44 2.09 4.61 4.57 4.7
FY03 4.38 3.46 5.66 3.46 4.05 2.09 5.66 5.91 5
FY04 5.38 6.92 4.37 5.44 6.55 3.18 5.48 9.15 4.14
FY05 6.48 7.91 4.33 6.62 7.99 4.27 6.14 7.71 4.49
FY06 7.16 7.76 6.4 7.36 7.62 6.9 6.68 8.09 5.14
FY01-FY06 4.76 4.58 4.74 4.43 4.99 3.2 5.28 6.62 4.05
Source: Statistical Year Book (various issues), Bangladesh Bureau of Statistics (BBS).
24
Consumer Price Index (CPI) and Inflation Rate

(Point to Point)
(1995-96=100)
2004- 2005- 2006- 2007- 2008
CPI Classification 05 06 07 08 Aug Sep Oct
NATIONAL
General index 153.23 164.21 176.06 193.54 207.27 210.14 209.31
Inflation 6.48 7.17 7.22 9.93 10.11 10.19 7.26
Food index 158.08 170.34 184.18 206.79 223.77 1227.66 226.88
Inflation 7.91 7.76 8.12 12.28 12.36 12.07 8.08
Non-food 147.14 156.56 165.79 176.26 185.72 187.10 186.13
Inflation 4.33 6.4 5.9 6.32 6.55 7.19 5.95
ALL RURAL
General index 154.03 165.37 177.42 195.14 209.53 212.72 211.58
Inflation 6.62 736 7.3 9.99 10.51 10.62 7.31
Food index 156.82 168.77 182.18 203.93 220.52 224.69 223.71
Inflation 7.99 7.62 7.96 11.94 12.34 12.13 7.87
Non-food 149.29 159.59 169.33 180.19 190.84 192.38 190.95
Inflation 4.27 6.9 6.1 6.41 7.05 7.76 6.21
ALL
URBAN
General index 151.29 161.39 172.73 189.65 201.75 203.85 203.77
Inflation 6.14 6.68 7.03 9.80 9.11 9.12 7.12
Food index 161.14 174.18 189.06 213.73 231.67 234.90 234.60
Inflation 7.71 8.09 8.54 13.05 12.40 11.93 8.59
Non-food 141.9 149.2 157.17 166.69 173.24 174.25 174.38
Inflation 4.49 5.14 5.34 6.06 5.20 5.70 5.28
Source: http://www.bbs.gov.bd/dataindex/cpi_sep_07.pdf
25
Figure-1: Annual Inflation Rate
Figure-2: Monthly Inflation Rate

(Point to Point)
26
Consumer Price Index (CPI): National

(1995-96=100)
CPI Classification 2004- 2005- 2006- 2007- 2008
05 06 07 08 Aug Sep Oct
General 153.23 164.21 176.06 193.54 207.27 210.14 209.31
6.48 7.17 7.22 9.93 0.20 1.38 -0.39
1. Food, beverage & 158.08 170.34 184.18 206.79 223.77 227.66 226.88
tobacco
7.9 7.76 8.12 12.28 -0.08 1.74 -0.34

2. Non-food of which 147.14 156.56 165.79 176.26 185.72 187.10 186.13
4.33 6.4 5.9 6.32 0.69 0.74 -0.52
I. Clothing & footwear 142.15 148.35 156.79 164.53 168.92 171.36 171.50
4.38 4.36 5.69 4.94 0.21 1.44 0.08
II. Gross rent, fuel & 141.43 152.02 162.32 174.7 187.74 189.09 186.45
lighting
2.52 7.49 6.78 7.63 0.91 0.72 -1.40
III. Furniture, furnishing, 143.18 151.21 162.61 178.56 189.43 190.57 190.70
household equipments &
operation
3.79 5.61 7.54 9.81 1.79 0.60 0.07
IV. Medical care & health 162.47 169.62 178.49 185.66 187.90 187.93 187.96
expenses
5.25 4.4 5.23 4.02 0.06 0.02 0.02
V. Transport & 179.94 191.66 201.15 211.01 220.50 220.94 221.03
communication
5.36 6.51 4.95 4.90 0.27 0.20 0.04
VI. Recreation, 150.24 165.42 171.47 174.86 179.25 179.59 179.64
entertainment, education &
cultural services
6.32 10.1 3.66 1.98 0.18 0.19 0.03
VII. Misc. goods & services 137.78 143.25 151.44 166.69 180.02 183.41 183.84
2.96 3.97 5.72 10.07 1.33 1.88 0.23
Note: Figures in italics indicate percentage change over previous year/month
27
Figure-1: Annual Inflation Rate: National
Figure-2: Monthly % change of index
28
Consumer Price Index (CPI): All Rural

(1995-96=100)
CPI Classification Weigh 2005- 2006- 2007- 2008
t 06 07 08 Aug Sep Oct
General 100 165.37 177.42 195.14 209.53 212.72 211.58
7.36 7.29 9.99 0.25 1.52 -0.54
1. Food, beverage & 62.96 168.77 182.18 203.93 220.52 224.69 223.71
tobacco
7.62 7.95 11.94 -0.04 1.89 -0.44

2. Non-food of which 37.04 159.59 169.33 180.19 190.84 192.38 190.95
6.9 6.1 6.41 0.81 0.81 -0.74
4.56 5.19 3.98 0.20 1.13 -0.05
lighting
8.8 7.17 7.96 1.08 0.89 -1.77
operation
5.32 7.31 8.69 2.18 0.57 0.04
expenses
5.09 5.93 3.40 0.03 0.02 0.01
V. Transport & 2.98 191.31 201.06 211.49 217.31 217.75 217.80
communication
6.92 5.1 5.19 0.27 0.20 0.02
VI. Recreation, 3.2 168.85 174.74 178.03 182.57 182.95 183.00
cultural services
9.8 3.49 1.88 0.16 0.21 0.03
3.34 6.13 10.87 1.34 1.80 0.10
29
Figure-1: Annual Inflation Rate: All Rural
30
Consumer Price Index (CPI): All Urban

(1995-96=100)
CPI Classification Weigh 2005- 2006- 2007- 2008
t 06 07 08 Aug Sep Oct
General 100 161.39 172.73 189.65 201.75 203.85 203.77
6.68 7.03 9.80 0.08 1.04 -0.04
1. Food, beverage & 48.8 174.18 189.06 213.73 231.67 234.90 234.60
tobacco
8.09 8.54 13.05 -0.18 1.39 -0.13

2. Non-food of which 51.2 149.2 157.17 166.69 173.24 174.25 174.38
5.14 5.34 6.06 0.39 0.58 0.07
3.87 6.93 7.23 0.23 2.18 0.38
lighting
3.77 5.6 6.60 0.34 0.15 -0.13
operation
6.28 8.08 12.42 0.92 0.67 0.12
expenses
2.61 3.3 5.73 0.17 0.03 0.05
V. Transport & 7.07 192.53 201.38 209.84 228.26 228.71 228.88
communication
5.55 4.6 4.20 0.26 0.20 0.07
VI. Recreation, 6.4 157.05 163.51 167.16 171.18 171.40 171.46
cultural services
10.91 4.11 2.23 0.26 0.13 0.04
5.4 4.79 8.27 1.30 2.08 0.53
31
Figure-1: Annual Inflation Rate: All Urban
32
Inflation Bangladesh vs. India, Pakistan, Sri Lanka (year-over-year)
Bangladesh India Pakistan Sri Lanka

DATE VALUE VALUE VALUE
1-Jan-91 14.96598639 14.14370915 15.38871708
1-Jan-92 12.42603551 8.105028637 12.14417745
1-Jan-93 7.89473683 10.15283842 14.89203889
1-Jan-94 7.80487805 11.32309217 10.23599455
1-Jan-95 9.765505425 9.502262447 15.37947919 2.420614266
1-Jan-96 5.37706381 8.264462803 8.931327171 11.16899619
1-Jan-97 2.498412027 10.68702291 13.39944514 16.73905588
1-Jan-98 7.095641397 7.931034476 5.746707607 13.17863613
1-Jan-99 10.09258366 9.265175722 6.226925925 3.819369345
1-Jan-00 3.249967153 3.801169593 3.429101012 0.329139245
1-Jan-01 0.750859021 5.915492919 4.66845878 16.17042479
1-Jan-02 3.776842103 4.521276653 2.89236536 8.897229716
1-Jan-03 4.883108219 3.30788807 3.396079935 13.62591912
1-Jan-04 5.959780619 4.433497457 5.152027031 0.517116854
1-Jan-05 5.521049001 3.773584907 8.505131667 14.58010001
1-Jan-06 6.586003876 5.000000033 8.759664458 7.958963557
1-Dec-06 6.941431669 8.878003977 15.32452072
Source: http://www.clevelandfed.org/research/Inflation/World-Inflation/Index.cfm
The inflation rate in Bangladesh is the second lowest among the three major South
Asian countries, which is below the inflation in Pakistan and Sri Lanka.
33
Figure: 1 Graphic representation

20
15
10
5
0
1
92
93
19 4
95
96
97
19 8
99
00
01
20 2
03
4
05
06
9
0
9
0
19
19
19
19
19
19
19
20
20
20
20
20
20
Bangladesh India Pakistan Sri Lanka
From Figure-1 we can say that, inflation rate of Bangladesh has fluctuated more in
1995 - 2003 as well as India, Pakistan and Sri Lanka. But 2004- 2006 it’s more stable
than to Pakistan and Sri Lanka.
Figure: 2 Graphic representations (trend)

20
15
10
5
0
19 1
92
94
19 5
96
98
99
20 1
02
03
05
06
93
97
00
04
9
0
19
19
19
19
19
19
19
20
20
20
20
20
20
Linear (Sri Lanka) Linear (Pakistan)

Linear (Bangladesh) Linear (India)
From Figure-2 we can say that, Bangladesh inflation trend curve is more stable than
India, Pakistan and Sri Lanka inflation trend curve. But India, Pakistan inflation trend
curve move downward more sharply than Bangladesh.
34
Inflation Bangladesh vs. United States, United Kingdom

(Year-over-year)
Bangladesh United States United Kingdom

1-Jan-91 5.651491367 8.953974899
1-Jan-92 2.60029717 4.147465429
1-Jan-93 3.25850833 1.696165193
1-Jan-94 2.524544174 2.465554755
1-Jan-95 9.765505425 2.804377576 3.326256187
1-Jan-96 5.37706381 2.727877577 2.876712324
1-Jan-97 2.498412027 3.044041443 2.796271645
1-Jan-98 7.095641397 1.571338789 3.30310881
1-Jan-99 10.09258366 1.670792078 2.44514106
1-Jan-00 3.249967153 2.738892262 1.95838434
1-Jan-01 0.750859021 3.732227524 2.701080481
1-Jan-02 3.776842103 1.142204468 1.285797746
1-Jan-03 4.883108219 2.59740257 2.942873621
1-Jan-04 5.959780619 1.92625204 2.634529163
1-Jan-05 5.521049001 2.969762409 3.167667893
1-Jan-06 6.586003876 3.985317247 2.382212837
1-Dec-06 2.540650437 4.430705893
35
The inflation rate in Bangladesh is the comparatively more than USA and UK.
36

12
10
8
6
4
2
0
1 1
1 2
1 3
1 4
1 5
1 6
1 7
1 8
2 9
2 0
2 1
2 2
2 3
2 4
2 5
06
9
9
9
9
9
9
9
9
9
0
0
0
0
0
0
9
9
9
9
0
0
9
9
9
0
0
1
Bangladesh United States United Kingdom
From Figure-1 we can say that, Bangladesh inflation rate more fluctuate comparatively
USA and UK.

12
10
8
6
4
2
0
1
1 5
6
2 1
2
6
3
4
9
0
9
0
9
0
1
Linear (Bangladesh) Linear (United Kingdom)

Linear (United States)
From Figure-2 we can say that, Bangladesh inflation trend curve is more uppers than
USA and UK inflation trend curve. This means Bangladesh on an average inflation rate
greater than USA and UK average inflation rates.
37
Inflation Bangladesh vs. Asia and Pacific, Developed Countries

(Year-over-year)
Developed
Bangladesh Asia and Pacific Countries
1-Jan-91 13.81744 6.539227
1-Jan-92 11.20567 4.197119
1-Jan-93 7.318546 3.678759
1-Jan-94 7.41027 3.464557
1-Jan-95 9.765505425 8.602866 4.086437
1-Jan-96 5.37706381 7.80693 3.431985
1-Jan-97 2.498412027 7.697113 3.420248
1-Jan-98 7.095641397 8.352525 2.929287
1-Jan-99 10.09258366 12.5024 2.245186
1-Jan-00 3.249967153 2.477918 2.894237
1-Jan-01 0.750859021 4.869368 3.285468
1-Jan-02 3.776842103 4.436706 2.142293
1-Jan-03 4.883108219 3.813884 2.664227
1-Jan-04 5.959780619 3.809217 1.778518
1-Jan-05 5.521049001 4.406547 2.546077
1-Jan-06 6.586003876 6.15886 2.809359
1-Dec-06 5.781489 2.423096
The inflation rate in Bangladesh is the comparatively more than Develop country but
more similar than Asia and Pacific.
38

15
10
0
19 1
19 2
19 3
19 4
19 5
19 6
19 7
19 8
20 9
20 0
20 1
20 2
20 3
20 4
20 5
06
9
9
9
9
9
9
0
0
0
9
9
0
0
0
19
Asia and Pacific Bangladesh Developed Countries
From Figure-1 we can say that, Asia and Pacific inflation rate more fluctuate in 1991-
2002 as a part of the Asia Bangladesh performance also remain same. But develop
country inflation rate is more stable than Bangladesh as well as Asia and Pacific
country.

15
10
0
1 1
1 2
19 3
1 4
1 5
19 6
19 7
1 8
2 9
2 0
20 1
20 2
2 3
2 4
20 5
6
9
0
9
9
9
9
9
9
9
9
0
0
0
0
0
9
9
9
9
9
9
0
0
0
0
1
Linear (Bangladesh) Linear (Developed Countries)

Linear (Asia and Pacific)
Develop country inflation trend curve and less than Asia and Pacific during 1995-2003.
But 2003-2006 inflation trend curve shows that Asia and Pacific inflation rate move
downward. This means Currently Bangladesh on an average inflation rate greater than
Develop country average inflation rates as well as Asia and Pacific country.
39
Inflation Bangladesh vs. World

(Year-over-year)
Inflation (Year-Over-Year) Inflation (Previous Month)
DATE BANGLADESH WORLD DATE BANGLADESH WORLD
1-Feb-90 1-Feb-90 3.684625
1-Mar-90 1-Mar-90 4.098876
1-Apr-90 1-Apr-90 1.703771
1-May-90 1-May-90 1.179533
1-Jun-90 1-Jun-90 1.299479
1-Jul-90 1-Jul-90 1.344471
1-Aug-90 1-Aug-90 2.000593
1-Sep-90 1-Sep-90 1.648701
1-Oct-90 1-Oct-90 1.716917
1-Nov-90 1-Nov-90 1.383099
1-Dec-90 1-Dec-90 1.159462
1-Jan-91 25.87059 1-Jan-91 2.205608
1-Feb-91 23.35539 1-Feb-91 1.897755
1-Mar-91 19.7837 1-Mar-91 1.353133
1-Apr-91 18.8553 1-Apr-91 2.493429
1-May-91 18.53431 1-May-91 0.9924474
1-Jun-91 18.20159 1-Jun-91 1.045498
1-Jul-91 17.93261 1-Jul-91 1.107991
1-Aug-91 17.06474 1-Aug-91 1.272017
1-Sep-91 16.5642 1-Sep-91 1.240093
1-Oct-91 16.61782 1-Oct-91 1.460783
1-Nov-91 16.80429 1-Nov-91 1.781851
1-Dec-91 17.13295 1-Dec-91 1.56629
1-Jan-92 23.90005 1-Jan-92 5.369457
1-Feb-92 24.65231 1-Feb-92 2.591944
1-Mar-92 25.7868 1-Mar-92 2.331851
1-Apr-92 25.09831 1-Apr-92 1.981336
1-May-92 25.92898 1-May-92 1.732677
1-Jun-92 26.79375 1-Jun-92 1.82856
1-Jul-92 27.19832 1-Jul-92 1.568332
1-Aug-92 27.45465 1-Aug-92 1.522576
1-Sep-92 28.14819 1-Sep-92 1.851163
1-Oct-92 28.82119 1-Oct-92 2.07225
1-Nov-92 28.8625 1-Nov-92 1.927765
1-Dec-92 29.15381 1-Dec-92 1.956321
1-Jan-93 26.83672 1-Jan-93 2.640665
1-Feb-93 26.35308 1-Feb-93 2.252613
1-Mar-93 26.13073 1-Mar-93 2.202101
1-Apr-93 26.39237 1-Apr-93 2.216444
40
1-May-93 26.79807 1-May-93 2.080422

1-Jun-93 27.29635 1-Jun-93 2.238151
1-Jul-93 28.08177 1-Jul-93 2.21348
1-Aug-93 29.30695 1-Aug-93 100.3537 2.379153
1-Sep-93 30.32514 1-Sep-93 101.2335 2.677859
1-Oct-93 30.8533 1-Oct-93 100.8144 2.528593
1-Nov-93 31.17149 1-Nov-93 101.0729 2.241982
1-Dec-93 31.61401 1-Dec-93 99.756 2.327259
1-Jan-94 31.7851 1-Jan-94 99.8899 2.505785
1-Feb-94 31.77128 1-Feb-94 100.8327 2.244573
1-Mar-94 31.64629 1-Mar-94 101.433 2.124131
1-Apr-94 31.85835 1-Apr-94 100.2873 2.392599
1-May-94 31.95986 1-May-94 100.2805 2.17111
1-Jun-94 31.76413 1-Jun-94 100.2083 2.072097
1-Jul-94 5.513452064 29.96924 1-Jul-94 99.2397 0.9352173
1-Aug-94 7.105097558 28.11302 1-Aug-94 101.8675 0.937615
1-Sep-94 6.832027844 26.0407 1-Sep-94 100.9754 1.058912
1-Oct-94 8.293765802 24.48619 1-Oct-94 102.1938 1.259259
1-Nov-94 7.60173266 23.24058 1-Nov-94 100.4271 1.230033
1-Dec-94 8.794569146 21.68771 1-Dec-94 100.8618 1.047464
1-Jan-95 9.765505425 20.79371 1-Jan-95 100.7814 1.56458
1-Feb-95 9.369117733 19.53591 1-Feb-95 100.4685 1.187574
1-Mar-95 10.4519605 18.28411 1-Mar-95 102.4373 1.054925
1-Apr-95 10.4100758 16.96647 1-Apr-95 100.2493 1.236267
1-May-95 10.55357142 15.54322 1-May-95 100.4109 0.9291323
1-Jun-95 11.22067123 14.05927 1-Jun-95 100.813 0.7617963
1-Jul-95 11.42036272 13.6028 1-Jul-95 99.4179 0.5315478
1-Aug-95 11.06410482 13.32731 1-Aug-95 101.5418 0.701993
1-Sep-95 11.88827467 13.09442 1-Sep-95 101.7247 0.8449926
1-Oct-95 9.372508836 12.42951 1-Oct-95 99.896 0.6759856
1-Nov-95 9.497080013 11.71406 1-Nov-95 100.5414 0.592635
1-Dec-95 7.729495745 11.10705 1-Dec-95 99.2336 0.4927788
1-Jan-96 5.37706381 10.40939 1-Jan-96 98.5807 0.9497886
1-Feb-96 4.918942928 9.902828 1-Feb-96 100.0318 0.725053
1-Mar-96 2.671941889 9.521091 1-Mar-96 100.2434 0.7036478
1-Apr-96 3.330269785 9.137872 1-Apr-96 100.8921 0.8850857
1-May-96 2.406719432 8.876607 1-May-96 99.5134 0.6841654
1-Jun-96 1.612903225 8.471618 1-Jun-96 100.0315 0.3880099
1-Jul-96 3.599247917 8.453216 1-Jul-96 101.3613 0.5323471
1-Aug-96 2.269601096 8.137552 1-Aug-96 100.2385 0.4045734
1-Sep-96 0.509673389 7.814463 1-Sep-96 99.9741 0.5183043
1-Oct-96 0.484173255 7.656199 1-Oct-96 99.8706 0.5301867
1-Nov-96 0.1501657 7.473072 1-Nov-96 100.2072 0.4144954
41
1-Dec-96 0.735754541 7.432719 1-Dec-96 99.8139 0.4633753

1-Jan-97 2.498412027 7.239234 1-Jan-97 100.3056 0.755789
1-Feb-97 3.053233139 7.244773 1-Feb-97 100.5732 0.7269966
1-Mar-97 3.589527031 7.009023 1-Mar-97 100.7651 0.4776129
1-Apr-97 3.238633385 6.754802 1-Apr-97 100.5503 0.6565673
1-May-97 4.689800217 6.35985 1-May-97 100.9122 0.3129247
1-Jun-97 5.587091347 6.286149 1-Jun-97 100.8889 0.3199336
1-Jul-97 5.900959295 6.030788 1-Jul-97 101.6626 0.2963337
1-Aug-97 6.668046137 6.02744 1-Aug-97 100.9646 0.3990059
1-Sep-97 7.016454513 6.028797 1-Sep-97 100.3007 0.5144103
1-Oct-97 7.69908295 5.972196 1-Oct-97 100.5077 0.4748228
1-Nov-97 5.604674007 5.757481 1-Nov-97 98.2585 0.2115198
1-Dec-97 5.95182596 5.729042 1-Dec-97 100.142 0.4339313
1-Jan-98 7.095641397 5.767345 1-Jan-98 101.3885 0.8013136
1-Feb-98 8.12323492 5.696207 1-Feb-98 101.5382 0.6603271
1-Mar-98 7.735426007 5.67372 1-Mar-98 100.4037 0.4575035
1-Apr-98 7.824853032 5.662771 1-Apr-98 100.6338 0.6383006
1-May-98 7.367416627 5.874624 1-May-98 100.4841 0.5199025
1-Jun-98 6.779829759 5.908175 1-Jun-98 100.3368 0.3552475
1-Jul-98 6.673848117 6.104472 1-Jul-98 101.5617 0.4740328
1-Aug-98 7.778855487 6.111808 1-Aug-98 102.0105 0.4093673
1-Sep-98 8.350256265 7.04992 1-Sep-98 100.8324 1.406494
1-Oct-98 9.265406268 7.285757 1-Oct-98 101.3566 0.693926
1-Nov-98 12.43574051 7.528886 1-Nov-98 101.1095 0.4397448
1-Dec-98 12.67233792 7.500946 1-Dec-98 100.3527 0.4089603
1-Jan-99 10.09258366 7.252421 1-Jan-99 99.0671 0.5674538
1-Feb-99 8.339269605 6.92725 1-Feb-99 99.9212 0.3523923
1-Mar-99 8.045596444 6.949208 1-Mar-99 100.1315 0.4752121
1-Apr-99 7.651814255 6.970922 1-Apr-99 100.267 0.6609232
1-May-99 7.989148227 6.767799 1-May-99 100.799 0.3278454
1-Jun-99 7.794508414 6.607479 1-Jun-99 100.1559 0.203607
1-Jul-99 6.55007803 6.442069 1-Jul-99 100.3892 0.3107454
1-Aug-99 4.603131752 6.382081 1-Aug-99 100.1465 0.3617012
1-Sep-99 4.047480925 5.44354 1-Sep-99 100.2968 0.5298543
1-Oct-99 3.469378764 5.243707 1-Oct-99 100.7934 0.5134056
1-Nov-99 3.418245142 5.01234 1-Nov-99 101.0595 0.2281784
1-Dec-99 3.302091427 4.912948 1-Dec-99 100.24 0.3230721
1-Jan-00 3.249967153 4.922367 1-Jan-00 99.0171 0.5182147
1-Feb-00 2.744049438 5.017901 1-Feb-00 99.4316 0.2115991
1-Mar-00 2.709801696 5.139756 1-Mar-00 100.0981 0.3600104
1-Apr-00 2.589067404 4.869511 1-Apr-00 100.1492 0.1593399
1-May-00 2.226361158 4.875523 1-May-00 100.4426 0.0986217
1-Jun-00 2.274791334 5.159114 1-Jun-00 100.2034 0.2395503
42
1-Jul-00 2.153965418 5.239281 1-Jul-00 100.2706 0.1266422

1-Aug-00 2.159418412 5.146239 1-Aug-00 100.1518 0.047543
1-Sep-00 2.135872366 5.137145 1-Sep-00 100.2737 0.2943675
1-Oct-00 1.591421686 5.041512 1-Oct-00 100.2562 0.1856187
1-Nov-00 1.242105326 5.106059 1-Nov-00 100.712 0.051645
1-Dec-00 1.171924308 5.022145 1-Dec-00 100.1705 0.0059905
1-Jan-01 0.750859021 4.739375 1-Jan-01 98.605 0.2508999
1-Feb-01 1.50603692 4.672066 1-Feb-01 100.1768 0.1473173
1-Mar-01 1.504560559 4.50147 1-Mar-01 100.0967 0.1963581
1-Apr-01 1.574669111 4.753033 1-Apr-01 100.2183 0.4001043
1-May-01 1.525359085 4.971048 1-May-01 100.3938 0.3072008
1-Jun-01 1.65757535 4.793635 1-Jun-01 100.3339 0.0702705
1-Jul-01 1.678404333 4.460289 1-Jul-01 100.2912 -0.1616602
1-Aug-01 1.709545686 4.411552 1-Aug-01 100.1825 -0.0142018
1-Sep-01 1.683883389 4.247009 1-Sep-01 100.2484 0.1212218
1-Oct-01 1.692146533 3.948695 1-Oct-01 100.2643 -0.1056625
1-Nov-01 1.201912989 3.765596 1-Nov-01 100.2265 -0.1222827
1-Dec-01 1.955492746 3.645455 1-Dec-01 100.9164 -0.1075732
1-Jan-02 3.776842103 3.631214 1-Jan-02 100.3665 0.2964665
1-Feb-02 2.900134567 3.581495 1-Feb-02 99.3305 0.0918937
1-Mar-02 2.926726867 3.742191 1-Mar-02 100.1225 0.3418457
1-Apr-02 2.941299679 3.780069 1-Apr-02 100.2325 0.4267296
1-May-02 2.913067074 3.573606 1-May-02 100.3663 0.0993213
1-Jun-02 2.953288149 3.496952 1-Jun-02 100.3731 -0.012641
1-Jul-02 4.006470049 3.706197 1-Jul-02 101.3171 0.0318112
1-Aug-02 4.827157896 3.850622 1-Aug-02 100.973 0.1219412
1-Sep-02 4.666529043 3.876066 1-Sep-02 100.0948 0.1474357
1-Oct-02 4.555377088 4.076909 1-Oct-02 100.1578 0.0902967
1-Nov-02 4.569737883 4.633564 1-Nov-02 100.2403 0.1395028
1-Dec-02 4.357209841 4.421717 1-Dec-02 100.7113 -0.0460239
1-Jan-03 4.883108219 4.458676 1-Jan-03 100.8723 0.327572
1-Feb-03 5.898838613 4.741623 1-Feb-03 100.2925 0.3651167
1-Mar-03 5.854061423 4.728623 1-Mar-03 100.0802 0.3313465
1-Apr-03 5.816219622 4.307217 1-Apr-03 100.1967 0.0310402
1-May-03 6.112284232 4.113997 1-May-03 100.6471 -0.0906227
1-Jun-03 6.038636321 4.007691 1-Jun-03 100.3034 -0.1186023
1-Jul-03 5.217963832 4.104109 1-Jul-03 100.533 0.1252307
1-Aug-03 5.047661551 3.977363 1-Aug-03 100.8096 0.2357096
1-Sep-03 5.694035854 3.973325 1-Sep-03 100.7107 0.3794232
1-Oct-03 6.279609077 3.888147 1-Oct-03 100.7127 0.2476184
1-Nov-03 6.760290209 3.3425 1-Nov-03 100.6937 0.1178876
1-Dec-03 6.552110512 3.646823 1-Dec-03 100.5149 0.2101412
1-Jan-04 5.959780619 3.537391 1-Jan-04 100.3115 0.4671104
43
1-Feb-04 5.77469921 3.343394 1-Feb-04 100.1173 0.4134913

1-Mar-04 5.952207517 3.242233 1-Mar-04 100.2482 0.4690059
1-Apr-04 5.933250895 3.398865 1-Apr-04 100.1788 0.4150159
1-May-04 5.620575009 3.727916 1-May-04 100.3501 0.4674263
1-Jun-04 5.639585111 3.957496 1-Jun-04 100.3215 0.3414843
1-Jul-04 5.645507958 3.951283 1-Jul-04 100.5386 0.1197812
1-Aug-04 5.514888786 3.970809 1-Aug-04 100.6849 0.2544838
1-Sep-04 7.345988289 3.883116 1-Sep-04 102.4584 0.3062122
1-Oct-04 7.924607692 4.188587 1-Oct-04 101.2556 0.5378161
1-Nov-04 6.36003059 4.28841 1-Nov-04 99.2339 0.2127921
1-Dec-04 5.503634449 4.080765 1-Dec-04 99.7056 -0.0096009
1-Jan-05 5.521049001 4.017053 1-Jan-05 100.3281 0.4306132
1-Feb-05 6.376232167 4.015089 1-Feb-05 100.9287 0.3646824
1-Mar-05 6.71800862 4.175111 1-Mar-05 100.5702 0.6203484
1-Apr-05 6.616789065 4.312768 1-Apr-05 100.0838 0.556538
1-May-05 6.901504856 4.022256 1-May-05 100.618 0.153666
1-Jun-05 7.349833008 3.792356 1-Jun-05 100.7422 0.1060082
1-Jul-05 7.683439582 4.090574 1-Jul-05 100.8511 0.382818
1-Aug-05 7.934262807 4.150832 1-Aug-05 100.9195 0.3019638
1-Sep-05 7.014199341 4.572381 1-Sep-05 101.585 0.6991284
1-Oct-05 7.277803032 4.483883 1-Oct-05 101.505 0.4445135
1-Nov-05 7.948969537 4.235301 1-Nov-05 99.8548 -0.037235
1-Dec-05 7.066929125 4.288807 1-Dec-05 98.8909 0.0277943
1-Jan-06 6.586003876 4.355227 1-Jan-06 99.8774 0.5246776
1-Feb-06 5.715396618 4.004972 1-Feb-06 100.1043 0.2069106
1-Mar-06 6.172680405 3.82289 1-Mar-06 101.0053 0.4531142
1-Apr-06 3.826526 1-Apr-06 0.5641994
1-May-06 4.172273 1-May-06 0.4825613
1-Jun-06 4.317919 1-Jun-06 0.2514264
1-Jul-06 4.051298 1-Jul-06 0.2105937
1-Aug-06 3.872413 1-Aug-06 0.3548158
1-Sep-06 3.065564 1-Sep-06 0.0493115
1-Oct-06 2.743437 1-Oct-06 -0.0121527
1-Nov-06 2.771581 1-Nov-06 -0.0038922
1-Dec-06 3.27494 1-Dec-06 0.1797088
The inflation rate in Bangladesh is the comparatively more than 6times greater than to
world inflation rate
44

40
30
20
10
0
19 4
19 8
20 2
19 1
19 2
19 3
19 5
19 6
19 7
20 9
20 0
20 1
20 3
20 4
20 5
06
9
9
9
9
9
9
9
9
9
0
0
0
0
0
0
19
Bangladesh World
From Figure-1 we can say, world inflation rate more fluctuate in 1991-1997 then it
become more stable. But Bangladesh inflation rate is more fluctuate in 1995-2003 then
it become stable.

40
30
20
10
0
19 1
92
93
19 4
19 5
97
19 8
99
00
20 1
20 2
03
20 4
06
96
05
-10
9
9
9
0
0
0
19
19
19
19
19
20
20
20
20
Linear (World) Linear (Bangladesh)
world inflation trend curve during 2003-2006 and less than world during 1991-2003. This
means Currently Bangladesh on an average inflation rate greater than World average
inflation rates. So we need to extra focus on our inflation rate and try to minimize
internal factor of increasing inflation for match more with inflation rate of world.
45
Conclusion:
Inflation, it appears, is a problem of income distribution and economic power game. Not
all the groups are affected by inflation in the same manner; some groups like the
surplus farmers, the stock holders, producers in some cases are benefited through
inflation. Groups who have benefited from remittance, increased employment or
participation, windfall gains, new opportunities and unabated entitlement are not really
bothered about the scourge of inflation. They may at times express indignation as a
conditioned response at the increase of price level. Many of them will, however, fiercely
resist any move by the monetary authority to constrict the money supply in order to
contain inflation. Their contention is that inflation has to be checked as if by faith healing
without using any effective instrument. Containing inflation thus boils down to
adjudicating a group conflict in which the affected groups, the beneficiary groups and
the unaffected neutral groups struggle to protect their interest, if necessary at the cost of
others. The monetary authority ultimately finds it a socio-political problem rather than a
pure economic problem. How far and how effectively the problem of inflation can be
tackled depends on the process and speed of resolving the socio-political problem.
46
Reference:
• Bangladesh Bank (2006), Economic Trends, Various Issues, Bangladesh Bank.
• Bangladesh Bureau of Statistics, Monthly Statistical Bulletin, Various Issues,
BBS, Ministry of Planning.
• http://www.clevelandfed.org/research/Inflation/World-Inflation/Index.cfm
• http://www.bbs.gov.bd/dataindex/cpi_sep_07.pdf
• http://www.imf.org/external/pubs/ft/weo/2006/01/data/dbcoutm.cfm?
SD=1980&ED=2007&R1=1&R2=1&CS=3&SS=2&OS=C&DD=0&OUT=1&C=513
&S=PCPIPCH-PCPI&CMP=0&x=36&y=16
• http://www.readerslab.com/2008/03/04/bangladesh-inflation-still-over-11pc-in-
january/
• http://en.wikipedia.org/wiki/Inflation
• http://www.bangladesh-bank.org/research/workingpaper/wp0604.pdf
• http://www.bangladesh-bank.org/research/policynote/pn0705.pdf
• http://www.economist.com/research/Economics/alphabetic.cfm?letter=I#inflation
47

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ECN 202 MACROECONOMICS (INFLATION)

Independent University, Bangladesh

Date: 23rd March, 2008

Mr. Syed Manzur Quader

Re: Submission of Report

Md. Mamun Serajul Mazid 0511077

Milton Friedman once said, “Inflation is always and everywhere a monetary

• In general, high or unpredictable inflation rates are regarded as bad: Uncertainty

• Inflation redistributes income from those on fixed incomes, such as pensioners,

• Relative Price Distortions: Firms do not generally synchronize adjustment in

Inflation is measured by calculating the percentage rate of change of a price index,

4. Commodity price indices, which measure the price of a selection of

7. Other types of inflation measures include:

Historical Trends of Inflation in Bangladesh

Source: Data collected from BBS (2000, 2001, and

Figure 2: Inflation and Real GDP Growth Rates (1981-2005)

Source: Data collected from BBS (2000, 2001, and 2005).

Factors Influencing Inflation

Historically, inflation rates in Bangladesh have stayed at a modest level,

Substantial depreciation in the exchange rate in FY91, higher money supply

Sources of Inflation in Bangladesh:

Bangladesh has no specific reason of inflation at present. Inflation is increasing more

Figure-1: Labor Cost and Inflation (annualized 3-month moving average)

Source: Bangladesh Economic Review 2005 and BB publications.

Figure-2: Import Cost and Inflation (12-month moving average)

8. Lower Growth in Agricultural Sector

10. Natural Calamity

11. Other Reasons

Bangladesh: Inflation picture in January

Last 28 years inflation chart of Bangladesh

year Inflation Inflation, year Inflation Inflation,

Rank of Bangladesh (inflation rate):

Inflation rate (consumer Ran Percent Date of

Factors Influencing Inflation (Bangladesh): FY90-FY06

Year Growt Inflation GDP Exchange Lending Deposit Wage

FY99 12.81 7.06 4.99 -5.43 14.16 7.24 5.54

Sources: 1. Statistical Year Book (various issues), BBS.

Trends in Inflation (Bangladesh): FY90-FY06

National Rural Urban

Consumer Price Index (CPI) and Inflation Rate

Figure-1: Annual Inflation Rate

Figure-2: Monthly Inflation Rate

Consumer Price Index (CPI): National

7.9 7.76 8.12 12.28 -0.08 1.74 -0.34

Note: Figures in italics indicate percentage change over previous year/month

Figure-1: Annual Inflation Rate: National

Figure-2: Monthly % change of index

Consumer Price Index (CPI): All Rural

7.62 7.95 11.94 -0.04 1.89 -0.44

Note: Figures in italics indicate percentage change over previous year/month

Figure-1: Annual Inflation Rate: All Rural

Figure-2: Monthly % change of index

Consumer Price Index (CPI): All Urban

8.09 8.54 13.05 -0.18 1.39 -0.13

Note: Figures in italics indicate percentage change over previous year/month

Figure-1: Annual Inflation Rate: All Urban

Figure-2: Monthly % change of index

Inflation Bangladesh vs. India, Pakistan, Sri Lanka (year-over-year)

Bangladesh India Pakistan Sri Lanka

Figure: 1 Graphic representation

Figure: 2 Graphic representations (trend)

Linear (Sri Lanka) Linear (Pakistan)

Inflation Bangladesh vs. United States, United Kingdom