Winter vegetables cool down food inflation to 12.92% in December

Food inflation in Bangladesh slightly eased last month, thanks to winter effects which has reduced vegetable prices across the country. 

Food inflation was recorded at 12.92% in December, according to the latest data from the Bangladesh Bureau of Statistics (BBS). The inflation was down from 13.8% in November.  

The slight fall in food prices has also reduced the country's general inflation, which reached 10.89% in December, down from 11.38% in November.

Experts said the decline in food inflation is due to seasonal effects, which could rise in the coming months due to Ramadan and the government's decision to raise the value-added tax (VAT) on certain products.

"I think a seasonal effect is at play here," Mustafa K Mujeri, former director general of the Bangladesh Institute of Development Studies (BIDS), told The Business Standard. 

"Due to the winter season, vegetable prices, which were higher earlier, have come down a bit. This has contributed to a reduction in food inflation," he added. 

However, he said it is uncertain how long this downward trend will continue in the coming months. "We need to observe whether this is temporary, as we are already seeing an upward trend in rice prices. With Ramadan approaching, the prices of many commodities are also rising."

Mohammed Mizanur Rahman, director general of BBS, also told TBS that winter vegetables have seen a price decline, and the calculations provided reflect this trend.

"However, this is specific to a particular month and could change later," he added.

The recent increase in VAT on many products may come into play, Mujeri said. "VAT has risen from 7% to 16% on various goods and services, which will impact the market in the coming days."

Meanwhile, non-food inflation in December was recorded at 9.26%, down from 9.39% in November. 

According to BBS data, rural inflation in December was 11.09%, down from 11.53% in November. Urban inflation was 10.84% in December, down from 11.37% in November.

Among all the inflation figures, urban food inflation witnessed the biggest drop, going from 14.63% in November to 13.56% in December, a sharp 107 basis-point drop.

October's food inflation was the highest since July, when it peaked at 14.10% due to disruptions in supply chains caused by anti-discrimination protests.

Zahid Hussain, former lead economist at the World Bank Dhaka office, told TBS that while it is encouraging that inflation has decreased, the sustainability of this decline is uncertain.

"If a drought happens, electricity supply is disrupted, and irrigation or fertiliser distribution is not ensured, the situation could worsen. Political instability may also contribute to such disruptions," he added. 

He suggested that better supply chain management, consistent monetary policies, and foreign exchange stability could sustain the downtrend in inflation.

However, unresolved supply-side issues remain a challenge, he mentioned. "In some cases, instead of merely reducing inflation, the focus should be on lowering prices to benefit the poor."

He also said the interim government has shown greater awareness of inflation management.