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Inflation creeps up on rural food price spirals

Rejaul Karim Byron
Infiation accelerated two basis points to 7.48 percent in May from the previous month, on the back of food price spirals in rural areas.
Food inflation increased 14 basis points month-on-month to 9.09 percent in May, but in rural areas it leapt 20 basis points, according to data from Bangladesh Bureau of Statistics. In urban areas, it dropped 1 basis point.
Non-food inflation, on the other hand, dropped to 5.16 percent in May from 5.23 percent in April.
Zahid Hussain, lead economist of the World Bank's Dhaka office, said rural people's incomes are rising with the growing political stability, which may have increased their food consumption. As
demand went up, so did the food price.
In recent times, the remittance inflow increased, which may have also contributed to the rise in rural incomes. The latest data also means the government's inflation target of 7 percent for fiscal 2013-14 is unlikely to be met.
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"Though the target is not likely to be achieved, the fact that inflation has remained stable in recent months is a good sign," Hussain said, adding that containing inflation to 7 percent should be the main focus of the upcoming monetary policy, due to be announced next month.
He went on to support the central bank's monetary stance, saying Bangladesh Bank took a cautious stand in the past several years so that inflation remains in control and it succeeded.
If inflation remains in control, economic growth will increase, he added.
Finance Minister AMA Muhith in his budget speech said food inflation sneaked up as there was disruption in supply due to continued strikes and blockades at the beginning of the fiscal year.
He however said the declining trend in
food price in neighbouring India and in other countries will bring down the price of food grains in the coming days.
Factoring in the declining trend in food and energy prices in the international market along with the satisfactory domestic agricultural production and supportive monetary policy, he said inflation will be hovering around the 7 percent-mark come June.
Hopeful that inflation would reduce further in the coming months, Muhith set the inflation target for fiscal 2014-15 at 6 percent. However, what is alarming is that food price has started creeping up in both India and the international market most recently.
Inflation in India reached a five-month high of 6.01 percent in May, driven largely by increase in prices of basic foodstuffs. Food inflation stood at 9.50 percent in