Price Inflation in Bangladesh: How to cope with it?

Abstract

Price inflation or simply inflation, which is defined as the continual or persistent rise in the general price level has a special connotation in economics. Inflation reduces purchasing power of money thereby reducing aggregate demand in the economy, other things remaining unchanged. Inflation also affects the distribution of income. Overall, it creates a sense of uncertainty among the consumers as well as the producers. This is why macroeconomic policies of any government are often directed towards controlling inflation. The rise in the inflation rate has prompted two views of the sources of higher inflation in Bangladesh. One is the demand - pull inflation that occurs when aggregate demand (AD) in an economy outpaces the aggregate supply (AS) and the other is the cost -push inflation which is typically caused by supply shocks (natural calamities such as flood,, drought, international price hike, etc.). Hence it is crucial for Bangladesh to formulate policies to curb present inflation for which, however, the magnitude, nature and causes of inflation are needed to be carefully studied. It is said that inflation is not necessarily bad. Creeping inflation is almost universally acceptable. Economic theory suggests that there is a trade-off between inflation and unemployment.