In macroeconomics, inflation is a much known term. Generally, Inflation denotes a sustained increase in the general level of price. During the inflation period the price of goods and services go up and the people will tend to buy less goods and services. Many people think that inflation makes them poorer than before because it raises the cost of what they buy. From the view point of macroeconomics, in Bangladesh the inflation rate is a bit unstable. An overview situation of inflation in Bangladesh over six months in 2007 is discussed in this term paper.
“Inflation in Bangladesh over six months in 2007” is the partial requirement under the course of principles of macroeconomics (Eco 102). As it is said earlier that during the inflation period the price of goods and services go up and the people will tend to buy less goods and services because they feel themselves poorer because inflation raises the cost of goods and services what they buy .Here, it is trying to identify the inflation, the reasons behind inflation and the current situation of inflation in Bangladesh.
To serve the purpose, it is followed standard research methodology to extract the findings and applied sophisticated data analysis techniques to get consistent and sound output. For the term paper secondary data have been collected. Secondary data have been collected from the internet, the article and the reports published in the daily newspapers related to this topic.
Bangladesh's rice market currently operates in an import parity price regime, that is, the cost of making imported rice available in the domestic market dictates the rice price in the domestic market. The earlier benefits from excess food reserve in India are no more available to Bangladesh.
The inflation results from increases in the cost of petroleum imposed by the member states of OPEC. Since petroleum is so important to industrialized economies, a large increase in its price can lead to the increase in the price of most products, raising the inflation rate.
Current estimates show that the rice price had risen by more than 35 percent over a period of the last five months, which corresponds with the trend in the international rice prices. A recent ERG (Economic Research Group) paper concluded that the increase in domestic fuel prices would lead to 10 percent or more inflation.
The reasons for the price increase are identified by:
(A) Increase in domestic fuel prices (effective since 2nd April 2007)
(B) Increase in rice price in the international market
Here it is trying to identify the general, food (rice) and non food (oil or Industrial goods) inflation rate over the last six months in Bangladesh. From January to June there is an increasing and decreasing inflation rate for all of the cases. For the convenience the table is given below:
Table: Inflation rate over last six months in 2007
Cost push inflation
Cost-push inflation or supply-shock inflation is a type of inflation caused by large increases in the cost of important goods or services where no suitable alternative is available. Cost push inflation occurs when firms increase prices to maintain or protect profit margins after experiencing a rise in their costs of production.
(I) Rising imported raw materials costs:
The main causes of cost push inflation are rising imported raw materials costs perhaps caused by inflation in other countries or by a fall in the value of the pound in the foreign exchange markets. In the figure: when AS1 (Aggregate Supply) and AD1 (Aggregate Demand) intersect at equilibrium point 1, then price is P1 and output is Y1. Because of the cost...