The rising inflation is a headache not only for the policymakers in Bangladesh but also for their kinds everywhere. It is a global issue. But for the common people, inflation means erosion of their real income. As economists differ on the factors that drive up inflation, so they hardly ever see eye to eye with each other over the prescriptions to tame rising level of inflation in an economy. From the investors' perspective, it is the real value of the return on their investment they are concerned about. As in the case of a layperson who measures the worth of what she/he earns in its purchasing power, the investors, too, want see the real worth of the profit they make with the investment. Of course, inflation saps profit at its worst. The bad news is there is no foolproof guideline for them to know which way the inflation is going and how their investment may fare in the long run.
In the past, the proponents of laissez faire economy, or what is more popularly known as free market economy believed that market itself can adjust things and maximise profit and the government should not intervene in it. However, when the world economy was hardest hit in history by the infamous Great Depression which first struck America with plummeting stock prices in 1930s, the Keynesian model of government intervention in the market was used to address economic stagnation and high level of unemployment. The recent experience of pandemic-time government support to keep economies afloat globally is another instance of Keynesian answer to failing market-driven economy in a crisis time. So also was the case during the economic downturn between 2007 and 2009, also called, the Great Recession, which again started in the USA triggered by the housing market burst preceded by a boom. To protect businesses and with it the entire economy, expenditure worth trillions of dollars from the public exchequer was made. That raised a few eyebrows as many saw it as rewarding the same financial sector businesses that destroyed the entire economy through their low-interest easy credits and toxic subprime mortgages with public money. But such complaint was not made when the government again came to the aid of businesses worldwide in the face of the pandemic-inflicted disruptions to the global supply chains. Whether it is by way of rewarding the errant business practices by killing the fattest calf for the proverbial prodigal son, or bailing out through stimulus the pandemic-hit businesses, it is the same Keynesian mantra that seems to be again in the ascendant. The sum and substance of this approach is to mitigate recessionary or depression-induced economic condition through monetary and fiscal measures. For the last one year and nine months, the governments in every country are doing the same to save economies. Bangladesh, too, has been no exception either. But now the question is if the aggressive government intervention with its easy money in the market is all to the good! What about rising inflation? Is the market now awash with cheap money behind the recalcitrant inflationary trend? But seeing that the inflationary pressure is confined to the price hike of a few daily essentials, consumer goods and services, not across the broader swathe of the economy, there is no good reason to fear that it portends another big recession or depression.
On the global scale, one can well trace the phenomenon to the overall post-pandemic increase in demand. Especially, rise in energy price following reignition of the economic engine worldwide, shortages in supply of semiconductors, etc have definitely a role to play. But a closer look at the inflationary trend that those developments as mentioned might have caused will show that the impact has been rather short-lived. So, it is believed among the academic circles in the advanced economies that the fluctuations in the Consumer Price Index (CPI) in recent times may be a transitory development and not in it for the long haul. For the apparent rise in consumer prices might also have happened as a result of what is known as 'base effect'. In fact, it arises from comparing the current price level in a given month with that of in the same month a year ago. The prices of goods and services that recorded a depressing trend a year ago due to pandemic-induced fall in demand, are now bullish due to the rising demand pressure. But in developing economies like Bangladesh, the low- and middle-income people are made to feel the pinch. This is for the simple reason that unlike in the advanced economies, the government here lack the fiscal resources to provide the vital income support to this segment of the population on a long-term basis. This is not to say that the skyrocketing trend of essentials prices in Bangladesh can be entirely explained by the general trend in the global economy. There is obviously a degree of irrationality in the case of Bangladesh.
The recent raise in fuel prices, that some local economists term arbitrary and hold, to a large measure, responsible for the unchecked uptrend in the consumer price index, cannot be claimed wholly as rational. There may also be certain distortions that many observers in the market attribute to a syndicate or oligopoly. In that case, it would again call for a bold state intervention to bust the nexus behind the artificially created price hike of essential commodities. To be frank, time is not yet ripe enough to leave the economy to the unregulated market forces. The government would be required to continue as the arbiter for quite some time. To cut a long story short, it is through a prudent use of fiscal and monetary tools that the government should address the issue of rising inflation.
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