WHAT IS INFLATION

Inflation is best defined as a sustained increase in the general price level leading to a fall in the purchasing power or value of money

MAIN CAUSES OF INFLATION

Demand-pull inflation: Demand-pull inflation is likely when there is full employment of resources and aggregate demand is increasing at a time when SRAS is inelastic. Cost-push inflation: Cost-push inflation occurs when firms respond to rising costs, by increasing prices to protect their profit margins. There are many reasons why costs might rise:

1. Component cost- This might be because of a rise in world commodity prices such as oil, copper and
agricultural products used in food processing

2. Rising labor costs -caused by wage increases, which are greater than improvements in productivity. Wage 3. Higher indirect taxes imposed by the government A rise in the specific duty on a lcohol and cigarettes,
an increase in fuel duties or a rise in the standard rate of Value Added Tax. In the case of food rice demand and cost both are playing role. Inflation is an inevitable part of any economy. It is not always a bad thing though and it is necessary in a healthy economy. All in all, inflation keeps our economy going and the world turning, even if portrayed as a villain.

HOW INCREASE IN FOOD PRICE IMPACT ON INFLATION

The food price hike has accelerated the general inflation rate in the c ountry. If the food price level rises at an existing rate of 1.31 percent per month and if adequate anti inflationary measures are not taken, the overall general inflation might touch a double digit figure. Food inflation leaves a harmful impact on the purchasing power when the per capita GDP does not correspond with inflation. From August 2009 to June 2010, the food inflation has risen by 5.7 percent whereas GDP growth rate has fallen by 0.1 percent . The dominance of food inflation is still substantial i n the overall inflation, with 10.8 percent in January 2011, making overall inflation at 8.99 percent.

CAUSES UNDERLYING OF HIGH FOOD PRICE

High fuel price: High fuel prices have contributed directly to soaring food prices, thus, further undermining the livelihoods of the poor through overall inflationary pressure. Increase in grain price : The increase in grain and oil prices has a direct impact on farm production costs (cultivation, processing, refrigeration, shipping and distribution), fertilizer prices, as well as diesel and transport costs. Imposition of food export control: Many countries started imposing food export controls by agriculture export bans, high export tariffs, price controls to protect local farmers and consumers, which further distorted regional and global food commodity market. Panic buying: Panic buying by importing countries, as well as by consumers and traders, caused further prices increases. Volatility of rice prices : World trade in rice is extremely small relative to production/consumption : over 90% of rice is produced and consumed in Asia. Only a few countries supply rice to the international market. This has made international rice prices volatile.

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COMPARISON BETWEEN FOOD AND GENERAL INFLATION

The food price rises created a range of impact on domestic food inflation and overall inflation. In January 2011, the food inflation was 11.21 percent and general inflation has risen to 8.99 percent.

According to the twelve-month inflationary analysis, food inflation was only 5 percent in August 2009 whereas the general inflation rate was stable at 4.6 percent. From September 2010 to January 2011, the food prices have risen up by 1.63 percent.

I NFLATION CURRENTLY OCCURING GLOBALLY If the world food price increases by 1 percent, the food price in Bangladesh increases by 0.23 percent and the general inflation by 0.18 percent .

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INFLATION CURRENTLY IN BANGLADESH

Bangladesh has been experiencing an uptrend in inflation like most economies in the world. CPI inflation started picking up in October 2010 to rise from 6.86% (Y -o-Y) to 7.54% (Y-o-Y). Food inflation (with CPI weight of 59%) followed a similar trend, star ting to rise in October. On the other hand, non -food inflation has been slowing down

IMPACT OF INCREASE IN FOOD PRICE AND HIGH INFLATION

Immense effect on the lower income group: Rising food prices is a major concern for the government as nearly 40 percent of people live on less than $1 a day and spends 70 percent of their income on food. Higher prices pushed many people into poverty: At Bangladesh economy the daily essential product is hiking day by day. People now even think to buy those goods. Oil , powder milk, rice every things price is highly rated. Higher prices have pushed many more people into poverty. Threat to basic survival: The more profound consequences is the impact of rising prices on households who were already poor. For those who alre ady struggling to meet their daily food and nutrition needs, the double shock of food and fuel price rises represents a threat to basic survival. Reducing the quantity and quality of food: The poorest households are reducing the quantity and quality of the food, schooling and basic services that they consume, leading to irreparable damage to the health and education of millions of children. Increase the poverty level : The food price inflation had increased the poverty level. It has caused the poor familie s to reduce food intake and cut other expenditures. The share of food in household spending is very large among South Asian poor and low income groups. In Bangladesh, food price shock has increased Bangladeshs poverty rate by around 3 percentage points . Survival of two groups: It is true that the aggregate capital stock of the country is increasing, but the rising inequality in our society is also alarming. One strata of our population will perhaps be able to consume sufficient food and the poor farmers may also get their return from food grain production, but the huge population besides these two will lo se their food purchasing power.

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Food Inflation Raises Pove rty and Inequality : Food inflation has a profound nexus with poverty and inequality. Food inflation hits hard the poor since their purchasing power decreases due to the erosion in real income.

SUGGESTIONS OF MEETING THE CHALLENGES OF INFLATION

The Social Protection Response : In the face of rising food and fuel prices, social protection programs can play a key role in forestalling increases in poverty, with wider developmental, social and even political benefits. Improved agricultural production: The primary answer to food price inflation lies in improved agricultural production . Have to stop tobacco production : In Bandarban more than 70% of its land are using for tobacco production which we cant afford for a small country like Bangladesh. Food security: Food security is not just associated to distribution system. As per the definition of food security there should be a provision for every person to live a healthy life. In that regard, this proposal states that that an important base food security is to bring inflation under control. Investing more in research and development not in subsidy : Experts argue that there may be a solution, investing more in research and development not in subsidy. They believe that extension of knowledge is of great importance.

REFERENCES FOOD AND AGRICULTURE ORGANIZATION OF THE UNITED NATIONS (FAO), (FEBRUARY 2011) Bangladesh Economic Update (January - February 2011)

R. McFall Lamm, Dynamics of Food Price Inflation (December 1979)

ESCAP (2010 ). Economic and Social Survey 2010 ( No. 7, March 2011) BRAC EPL Research , (23rd February, 2011)

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