Inflation dropped in the first month of the fiscal year on the back of food price stability, appreciation of local currency and weak investment demand.

"It's very welcome news," said Hassan Zaman, chief economist of Bangladesh Bank.

In July, the consumer price index came down to 7.78 percent from 7.97 percent in June, supported by falling food and nonfood inflation, according to 1995-96 base year data from Bangladesh Bureau of Statistics (BBS).

Food inflation dipped to 8.48 percent from 8.53 percent in June, which Golam Mostafa Kamal, director general of BBS, credits to the stable commodity prices during Ramadan.

Non-food inflation stood at 6.58 percent, down 0.41 percentage points from the previous month.

Zaman, however, said further reduction in inflation is needed in the months ahead to achieve the average inflation target of 7 percent the BB set for fiscal 2013-14. "This will require careful management of inflationary pressures."

“A good local and global production as well as appreciation of taka contributed to

the fall in inflation," said KG Moazzem, additional research director of Centre for Policy Dialogue (CPD).

The absence of fresh investments means the inflation pressure also remains low, he added.

In reality, the downward trend looks unlikely to continue given the proposed wage increases, rising inflation in India and possible supply disruptions due to political unrest and unfavourable weather.

CPD's Moazzem, too, is sceptical that inflation will fall much until December, citing a possible spike in government spending on short-term popular projects in the run-up to parliamentary election.

Ahsan H Mansur, executive director of Policy Research Institute, said it would be "challenging" to cap inflation within the target, partly because of the excess liquidity in the banking system, which would put demand pressure on inflation.

The possible increases in industrial workers' wages stand to cause cost-push inflation, he said. "House rent, rickshaw fare and cost of various other non-tradable services will rise with the wage hike," Mansur said.

"However, if the current level of exchange rate stays as it is, it will help contain inflation."