Bangladesh’s inflation rate dropped to 8.29% in August, the lowest in 37 months, signalling some success in the government’s efforts to curb rising prices, according to the Bangladesh Bureau of Statistics.
The decline from 8.55% in July and 10.49% last year marks a significant milestone. Yet, while inflation moderation offers relief, it has come at a cost – slower growth, limited investments, and stagnating job creation.
The most notable reduction in inflation was observed in non-food categories, where the rate decreased to 8.90% from 9.38% in July.
Tightened monetary policies, including high interest rates and restricted credit growth, have helped lower costs in sectors like housing, clothing, education, and healthcare. Both urban and rural households have begun to experience some relief from these reductions.
However, food inflation remains a persistent concern, rising slightly to 8.60% from 8.56% the previous month. This continuous pressure on food prices has strained household budgets, especially for low- and middle-income families.
Rural inflation stood at 8.39%, with food inflation at 7.50%, while urban inflation decreased to 8.24%, yet food prices remain a significant burden for city dwellers.
Slower economic activities in August
While inflation has eased, the broader economic impact of the government’s monetary tightening is becoming evident.
The Purchasing Managers’ Index (PMI) fell to 58.3 in August, down 3.2 points from 61.5 in July, according to the index providers the Metropolitan Chamber of Commerce and Industry, Dhaka and the Policy Exchange Bangladesh .
Although the PMI remains above 50, signalling ongoing expansion, the slowdown reflects the weakest growth in 11 months, indicating a loss of momentum across manufacturing, agriculture, construction, and services.
Agriculture contracted for the first time in 10 months, with its PMI dropping to 46.7 from 53.8, driven by adverse weather, rising input costs, and a decline in new orders and business activity.
The construction sector also saw contraction, with PMI falling to 49 from 52.5. While manufacturing and services continued to expand, their growth rates slowed – manufacturing’s PMI fell to 60.6 from 61.9, and services dropped to 61.3 from 64.6.
Dr M Masrur Reaz, Chairman and CEO of Policy Exchange Bangladesh, noted that the reduction in inflation has not come without significant trade-offs. “The contractionary policies are working to lower inflation, but they’re also dampening economic activity, especially in sectors like agriculture, construction, and small businesses,” he told TIMES of Bangladesh. “While the economy continues to grow, the pace has slowed, and this could have implications for employment and investment.”
Dr Reaz explained that to manage inflation, the government has kept interest rates high and restricted private sector credit growth, leading to a sacrifice in growth.
“To control inflation, Bangladesh has had to slow private sector credit growth, and this means sacrificing some growth. However, if inflation can be controlled, it will be worth it,” he said.
SMEs, which are vital to job creation and economic dynamism, have been particularly impacted. Dr Reaz pointed out that high borrowing costs and restricted access to credit are putting immense pressure on these businesses, limiting their ability to expand and hire. “Private investment and foreign direct investment (FDI) have also remained subdued, reflecting broader economic caution,” he said, highlighting the stagnation in key investment flows.
Dr Reaz further emphasised the need for significant structural reforms to revive growth, which he sees as still insufficient.
“The biggest challenge right now is that private investment and FDI are not growing. Small businesses are in a dire state, and employment growth is stagnating, leading to significant income loss,” he said. “To turn things around, we need large local and foreign investors to commit to investment. But they won’t do so unless there is political stability and a clear roadmap for it.
“We need policies that stabilise prices while also promoting investment, supporting SMEs, and fostering job creation, especially in rural and economically vulnerable regions,” said Reaz.
