Policing the pipeline: Solution to combat supply chain bottlenecks, inflation
The government has implemented multiple measures to curb inflation, yet the prices of daily necessities continue to soar, leaving consumers grappling with stagnant incomes.
Despite interventions such as raising the policy interest rate (repo rate) from 5% to 10% and increasing bank loan interest rates from 9% to over 15%, inflation, particularly in food items, remains stubbornly high.
In November, food inflation reached 14%, amplifying the strain on household budgets.
Economists argue that inefficiencies and manipulation within the market's supply chain are the root causes of the crisis. Strengthening oversight from producers to consumers and targeting market-dominating "big players" instead of small-scale retailers have been recommended as crucial steps. Simplifying import and export policies to foster competition and encourage new market entrants is also seen as a pathway to stabilisation.
Inflation: The persistent challenge
According to the Bangladesh Bureau of Statistics (BBS), inflation peaked in July this year, reaching double digits for the first time since the 2007-08 fiscal year. Overall inflation now stands at 11.66%, with food inflation at 14.1%, marking a 16-year high. This sharp rise comes despite the fall of the Awami League government in August, which many had hoped would stabilise market prices.
However, goods prices have continued to climb, driven by systemic inefficiencies and syndicates dominating supply chains.
Market dynamics and the supply chain problem
Economists emphasise that the government's current approach to market monitoring—focused on retail-level enforcement—is ineffective. Zahid Hossain, former chief economist at the World Bank’s Dhaka office, pointed out, “Threatening small retailers will not stabilize the market. The issue lies with powerful syndicates manipulating prices at higher levels in the supply chain. Without targeting them, any policing effort will fail.”
Hossain stressed the need for transparency in tracking the flow of essential goods like rice, pulses, wheat, and sugar. He advocated for a competitive market environment where new traders can enter freely, countering monopolistic practices.
Lessons from neighbours: Sri Lanka and Pakistan
While Bangladesh struggles, neighbouring countries like Sri Lanka and Pakistan have made notable progress in tackling inflation.
Sri Lanka: Following economic turmoil and mass protests in 2022, Sri Lanka has seen a deflationary trend since September 2023, with inflation falling to -2.10% in November.
Pakistan: Despite political instability, Pakistan has controlled inflation effectively, reducing it to 4.90% in November—its lowest in six years—after peaking at 38% in April 2023.
In contrast, Bangladesh's inflation remains the highest in South Asia, highlighting the urgency for effective policy reform.
What needs to be done?
Mustafa K. Mujeri, executive director of the Institute for Inclusive Finance and Development, underscores the importance of addressing structural inefficiencies. He said, “The problem lies in market manipulation by dominant players. The government’s efforts need to focus on breaking these syndicates and ensuring that the supply chain functions efficiently.”
Mujeri added that monetary policy alone is insufficient to combat inflation. A comprehensive approach involving supply chain reform, market transparency, and fair competition is essential.
A call for coordinated action
The high inflation rates are eroding purchasing power, straining households, and slowing economic growth. To bring relief, the government must adopt a multi-faceted strategy targeting systemic issues, fostering market competition, and taking decisive action against dominant market manipulators. Without such measures, the prices of daily necessities will remain a pressing burden for the people of Bangladesh.
