Impact of Inflation on Different Household Groups in Bangladesh

Study Team: Monzur Hossain, M. K. Mujeri, Tahreen Tahrima Chowdhury

Sponsor: BIDS Research Endowment Fund

The Bangladesh economy had experienced a moderate rate of inflation in the 1990s and first half of the 2000s, at an average rate of less than 4.0 percent, before it moved to a two-digit level in 2007-08. An important upward surge in inflation is observed since then. Bangladesh was worst hit by inflation in 2007-08 and 2010-11 when inflation crossed two-digit level with significant upward movements of food inflation. In 2007-08, the 12-month average inflation rate rose to 12.28 percent (2005-06 base), which after slowing down in the next two years again reached 10.89 percent in 2010-11—the highest ever in the recent history of Bangladesh. One characteristics of recent inflation in Bangladesh is that it is mostly led by food inflation. The inflationary episodes thus largely follow the trends of high global commodity price volatility, particularly rice prices in domestic and global markets.  However, the sources of high inflation were not the same throughout the earlier decades. While inflation was dominated by non-food items in the first half of the 1990s, the opposite was seen in the latter half of the 1990s. Similarly, food inflation dominated the whole decade of 2000s, but an increasing relative importance of non-food inflation is seen from 2010. The rising rate of inflation in recent years has raised significant concern regarding its adverse effect on the economy, especially relating to its negative welfare consequences on different socioeconomic groups particularly the poor. 

In the backdrop of rising inflation, it is important for the policy makers to know which types of households are more affected by rising inflation and what measures can be adopted to redress their disadvantages at least partially. The persistence of inflation and inflationary expectations over a sustained period underscores the need for a fresh look at the pattern of inflation faced by various groups of households particularly to understand how different groups could cope with sustained inflation in terms of their consumption behaviour as well as earning strategies.