Executive Summary

In the early 1990s and 2000s, the economies around Bangladesh enjoyed a low inflation regime. Today, the world is facing excessive price hike in fuel and non fuel commodities. Inflation is the root of all evil because firstly, it erodes purchasing power of a low and middle income people in Bangladesh. With a fixed income and no signs of change in the short term period, they have to pay more money to chase too few goods. Why is this happening? For one, the price of petroleum which is a major contributor to the production of goods and services is now worth over $100 a barrel in the international market. According to the Bangladesh Bureau of Statistics, the overall inflation in Bangladesh was 9.04 percent on 12-month annual average and 10.43 percent on point-to-point basis in February 2012; whereas the food-inflation hit 11.59 percent in the same period. The concerned authorities in Bangladesh have taken several measures to contain the current inflation. However, some of their measures have proven to be countervailing and the ongoing inflation in the economy shows no sign of restrain. The reason for this is that inflation alone is not the only concern about the economys stability. Other economic objectives include economic growth, unemployment, Balance of Payment, Exchange Rate and the Budget management. High inflation tends to make investment decisions unpredictable which distorts production over all. For one thing straight, savings tends to be reduced and interest rate rise which tends to reduce the borrowing required for investment. This hurts the poor relatively more as they are dependent on peoples investment as a job creation. This does creates socio-economic impact and the government has to deal with this by creating jobs which is created artificially at the cost of being heavily in debt by borrowing from national and international organizations. The reason for this is the accountability of the government politically to the people of the economy. Central banks around the world play a key role in managing prices and formulate monetary policies keeping price stability as a major objective. Exchange rate is another channel by which inflation can be transmitted to an economy. The exchange rate polices of the BB favours the countrys export sector. There has been a persistent devaluation of the Bangladesh Taka (BDT), the countrys domestic currency, since the inception of Bangladesh. Since 2003, the BDT has depreciated around 23-27 percent against the USD. Today, the exchange rate stands at Taka 82 per $. As a result, the importers in Bangladesh have been paying higher import bills in terms of domestic currency that ultimately being pass-through to the consumers.