Food inflation for poor twice the official data

Food inflation facing the poor and the marginalised in Bangladesh is more than twice the official figure since the national statistical agency relies on an old base year that does not reflect reality, said the South Asian Network on Economic Modeling (Sanem).

The official figures of inflation don't reflect the real scenario of the stress of the marginalised households in the wake of the price hikes, it said.

"Officially reported food inflation figures are grossly underestimating the actual food inflation faced by financially marginalised households in Bangladesh," said Selim Raihan, executive director of the think-tank.

He made the comments while virtually releasing a study report on "Do the official inflation figures in Bangladesh reflect the actual inflation faced by the marginalised households in Bangladesh?" yesterday.

In January, food inflation in the urban and rural areas was 4.85 per cent and 5.94 per cent, respectively, according to the Bangladesh Bureau of Statistics (BBS).

However, Sanem's estimate suggests that the marginalised households are facing food inflation rates that are more than two times the officially reported food inflation rates.

The study used the detailed and disaggregated data of the nationwide survey of 10,500 households conducted by the Sanem and the General Economics Division of the Planning Commission in 2018.

The monthly point-to-point food price indices and food inflation rates were calculated based on the retail price data collected by the Department of Agricultural Marketing, the agriculture ministry, and the Trading Corporation of Bangladesh (TCB).

According to the Sanem study, in January, food inflation was 11.36 per cent in the urban areas and 11.21 per cent in the rural areas.

The study showed the average food consumption is 61.13 per cent of the total consumption expenditure of the urban marginalised household groups and 65.36 per cent of the total consumption expenditure of the rural household groups under consideration.

These are much higher than the shares of the food expenditure used by the BBS in their Consumer Price Index (CPI) calculation, which is 45.17 per cent for the urban areas and 58.54 per cent for the rural areas.

"Inflation is the cruellest tax on the marginalised people," said the Sanem.

The poor can't cut down on necessities and are the hardest hit by the soaring prices of essentials as they rely on the necessary food items, according to the study.

"The policymakers need to address this concern with utmost priority," said Raihan, a professor of economics at the department of the University of Dhaka.

The Sanem said it was difficult to understand why the BBS is still using the 2005-06 Household Income and Expenditure Survey (HIES) data to derive the weights of the items in the consumption baskets whereas the latest HIES 2016 data has been available since 2017.

It is quite reasonable to argue that the food habits of the people in Bangladesh, both poor and non-poor, have changed over the years since 2005-06.

"However, changes in food habits are not addressed while calculating the CPI by the BBS," said the Sanem.

"More importantly, the CPIs calculated by the BBS, hardly reflect the inflation faced by the low-income households in Bangladesh, both in the urban and rural areas."

The average consumption baskets used by the state-run agency to calculate the CPIs are not truly representative of the consumption pattern of many low-income households.

The Sanem identified seven factors for the price of food items: supply-demand mismatch; relative price change and additional pressure on demand; disruption in the supply chain; non-competitive market and weak monitoring; rise in import cost; rising food prices in the world market; and rise in fuel prices.

The study said Covid-19 affected income and employment, creating new poor and increasing vulnerability.

"Even the recovery process is disrupted due to inflationary pressure," Prof Raihan said.

For faster recovery from the Covid-19 impacts, the Sanem suggested proper assessment of the market's demand and supply situation.

It called for expansion of the social protection coverage to include the old and new vulnerable population and involving all stakeholders in the market monitoring.

Prof Raihan said they identified eight marginalised groups in Bangladesh that are vulnerable to food insecurity due to the increase in the price of essential food items.

In the urban areas, the groups are ready-made garment workers, day labourers, rickshaw/van-pullers, and small traders.

In the rural areas, these groups include landless farmers, day labourers, rickshaw/van-pullers, and small traders.

Addressing the programme, Bazlul Haque Khondker, chairman of the Sanem, said the long queue of low-income people in front of the trucks of the TCB selling essentials at subsidised rates proves that the price of food increased abnormally.

He suggested implementing the social safety net programmes properly to address the marginalised people's distresses.

Sayema Haque Bidisha, research director of the Sanem, said the actual inflation in rural areas is higher than in urban areas.

"The lower-income people spend more of their income on food consumption."