Inflation pushes low income people to the wall

The continued fall of the taka against the US dollar, as reported from time to time by the central bank, is of concern to the general public. While a linear cause-and-effect relationship doesn’t always work to determine commodity market behavior, the steady spike in commodity prices indicates that some kind of correlation exists. And this is all the more true since, lately, most of the country’s basic products are imported from abroad. Since import payments are usually made in US dollars, a rise in the price of the dollar against the taka is obviously a push factor for food price inflation. And according to Trading Economics, the cost of food in Bangladesh increased by 5.43% in November 2021 compared to the same (cost of food) in the same month of the previous year. But, worryingly, there is no end in sight to this growing upward trend in the prices of essential commodities.

Although the depreciation of the taka against the dollar can help exports by lowering the price of Bangladeshi products in the international market, thus improving its competitiveness, it also makes imported products more expensive. It should be noted at this point that the economy has seen a larger outflow of hard currency to meet the payment obligation of the growing volume of imports. In fact, based on Letters of Credit (LC) settlement, imports jumped 53.74% in the July-November period last year, costing the foreign exchange reserve 30, 23 billion dollars compared to what it was during the corresponding period. the previous year (19.72 billion USD). Clearly, this points to a growing balance of payments deficit, a situation economists described in a recent town hall discussion as cause for concern and advised the government not to let the situation spiral out of control. Notably, the current account deficit now stands at over $6.0 billion in the five months of the current fiscal year, compared to over $3.0 billion in the same period a year ago. .

However, this might not have been a problem if it had also matched the influx of foreign currency at least at a comparable rate, if not higher. But the recent trend of hard currency inflows is rather depressing. In particular, inward remittances from migrant workers have declined. Although export earnings have been impressive over the past few months, this could hardly close the widening balance of payments (BoP) gap. This being a macroeconomic problem, the government is obliged to intervene to manage it. But the laity, who have to pay the nose to meet the expenses of their families, cannot wait because their incomes have not increased in the meantime. If so, how is the government going to tackle this problem, which is largely attributable to people’s loss of income due to the pandemic? Generous government stimulus funds that have gone mainly to large corporations have not helped the low-income segment of the population. Worse still, the benefits of the big stimulus packages enjoyed by big business have not trickled down to their lowest-paid employees. Readymade Garment (RMG) units can be a good example. Far from being helped, many workers in these factories had to face job cuts, while others had to accept lower wages under the pretext of loss of activity. In fact, the support the government gave to the vulnerable section was basically a drop in the ocean. Financial aid in most cases ultimately failed to reach the intended recipients. But the fact remains that due to a data deficit, a wrong address and a deliberate attempt by an invested quarter to divert the money to their end, government largesse in many cases does not failed to produce the desired impact. As a result, a new army of new poor joined the ranks of the millions of existing poor. In fact, rather than breaking the vicious circle of poverty, the trillions of taka of cheap, if not free, state money, if any, have only helped to enrich the rich.

Now, with economists around the world blaming rising inflation on government money being released into the market to bail out businesses and support the unemployed, the unemployed and the poor are now being forced to taste the bitter fruits. In advanced economies as in the West, companies are trying to protect their lowest-paid workers by raising the minimum wage floor. Unfortunately, in Bangladesh, big companies, let alone smaller ones, do not have such a policy to support their poorly paid staff even in times of crisis. In the absence of strong and proactive unions, government may well come to the rescue of this neglected portion of private sector employees.

But with the current policy of promoting business in the hope that it will ultimately contribute to economic growth, and rightly so, the interests of low-income people have been put on the backburner. Is it any wonder, then, that despite the glut of free public money, the poor are forced to skimp on food and other necessities? Soaring food price inflation has pushed them into the wall. The government should find ways to protect low-wage public and private sector employees and low-income people in society from crippling inflationary pressure.

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