Agflation is baaaaaack!

Agflation — inflation of food and agricultural products — is back.  In the first half of 2010, food prices in Bangladesh higher by over 10% compared with their levels a year earlier (Chart below).  This meant a food price inflation faster than at any time under the last BNP government.  

For a government elected in large part because of its commitment to keep prices stable (the famous 10 taka kg rice pledge), this is not a good look.  Ironically, high inflation is not the government’s fault.  But it still deserves blame for actions and inactions that may make matters worse, with unattractive political consequences.

First things first.  High prices are not Awami League’s fault.  Food prices have risen by more in our neighbouring countries since the beginning of 2009, as is shown in the chart below.

In fact, food prices have risen in the global market, according to the Food and Agriculture Organisation’s figures in this period — see below.

In fact, the government has been lucky — things could have been worse.  Cereal prices were slugglish in the global market over this period, until very recently.  And taka hadn’t appreciated by as much against the Indian rupee as it did in 2008 (chart below) — as argued here, taka-rupee exchange rate is a key determinant for our food prices.  In fact, more recent slight depreciation probably help cushion against the sharp rises in food prices in India.

The government was also lucky earlier in its term, when it received an unexpected honeymoon from the falling commodity prices in the global market — a side effect of the Great Recession. 

Did it use the lucky break wisely?  That’s a subject of its own post.  But the break is over.  And I suspect we won’t be seeing any more difficult decisions from this government.  If you have a list of difficult things that you wanted AL to do, feel bad because they won’t happen. 

This is because, unless the world heads into another major recession, high prices are likely to stay.  Anecdotally, prices have continued to climb in recent months. 

The thing is, we don’t know exactly by how much, because the BBS hasn’t told us. 

We are nearly ending September, but the latest BBS inflation figure is for June.  All major South and Southeast Asian coutries — whose statistical agencies are comparable with ours — have inflation figures for August.  There was a general rise in food prices in those countries.  Bangladesh should be no exception. 

So why is BBS silent?  On conditions of anonymity, a senior BBS official has told me that they are afraid of publishing a figure that may damage the government’s image.  After this, can you blame them? 

It seems that BBS is afraid to say that its estimates for weak harvest last year has come true.  It’s also afraid to say that aman might be weaker too.  And it’s afraid to state the obvious that food prices are high and rising. 

While the government doesn’t deserve the blame for initial price rises, it definitely seems to be guilty of hiding its face in the sand.  In fact, it also deserves the blame for harping on about ‘syndicates, corrupt businessmen, and conspirators’.  There is simply no evidence that these ‘nefarious forces’ are behind high prices — my stories are here, while a more formal academic account by World Bank’s Zahid Hussain and Sanjana Zaman finds:

Reported concentration ratios are rather low by international standards and at best suggest the presence of loose oligopolies. It is possible that these large players implicitly or explicitly collude to provide price leadership, but the study sheds no light on how these players actually operate. If the existing players are making “excess profits”, what is preventing entry of new players to compete for these profits? There are no legal or policy barriers to entry. It would be hard to argue that there may be “natural” or technological barriers. The source of the market failure is not clear…

Corrupt businessmen or anti-liberation forces are not the problem here.  There are specific economic reasons, with economic solutions.  If the government isn’t willing to listen to evidence-based argument, it will deserve the ignonimity of public opprobrium.  Even if it’s not at fault, it will be blamed for high prices.  And it will lose in the court of public opinion.

The thing is, as the late Ahmed Safa said, AL’s victory is its alone, but when it loses, the whole country loses.

(A slighly different version is posted in UV).

Update: 30 Sep 9.22am Dhaka time.

The video of 10 taka kg rice promise (hat tip, DS)