Financial Express print this

Tormented by soaring prices
Enayet Rasul

Rising prices are now the subject of worried conversation everywhere -- at tea stalls, buses, launch terminals or any location where people come together and exchange opinion. Complete strangers when travelling together to a common destination usually discuss the weather. Not anymore. Even between strangers, in many cases these days, the first talking point turns out to be prices of basic commodities - such as prices of the rice they must consume daily or the prices of other kitchen items.
Two consequences in the main are noted from the rising prices. Firstly, the price escalations have much increased the costs of living agonies of ordinary people. The poor and the extreme poor comprise nearly half of the population. Understandably, price increases tend to have the most unhappy effects on them and this is more the case in the present price rises as prices of mainly common but indispensable consumption items of the poor are rising. Thus, the purchasing power of the poor is getting eroded. If the present conditions of high prices persist, then the poor will be the poorer and poverty's pangs will deepen in the country.
Besides, even in their poor state, the poor, when they are blessed with relatively stable or improved purchasing power, they create demand for a large number of goods and services beyond food and other basic things. The production and marketing of these not so essential products then help to create employment and income for people or the economy grows in the process. But with their purchasing power getting badly battered, the poor or common people are unlikely to demand such non essential items in good quantities and hence a slump in their production can be expected with sorry consequences of the same on their producers and sellers. Thus, overall deepening of the poverty situation, worsening unemployment and economic stagnation are likely to be the fallout from the unabated price rises of essential products.
One reaction to the rise in prices can be reduction of consumption . Such a reaction may even lead to decrease in prices as sellers then respond to consumer reaction by lowering prices in their bids to fast dispose off stocks of goods with them. If goods do not sell at a brisk pace, business turnover declines. But in the current price increases, this strategy of foregoing consumption to put pressure on the sellers cannot apply for the simple reason that most of the higher priced goods are considered as essential items by common people. Thus, even the poor cannot postpone or reduce consumption of flour, rice, cooking oil and other kitchen items as these are their basic consumption items. A poor man confronted with the choice of buying a shirt or eating a square meal, will likely decide to buy only food or food preparation items in unchanging quantities no matter what the price. He might decide to forego consumption of a new shirt but he is most unlikely to buy less rice or flour or cooking oil because the costs of these are higher. People seem not to hesitate to even, beg, borrow or steal, as the saying goes, to meet the needs of basic sustenance in the form of food. Sections of businesses --dealing in essential consumer products-- understand too well this psychology or vulnerability of the consumers and have decided to exploit it to the utmost to squeeze out supernormal profits.
Therefore, it needs no stretch of the imagination to realise the sufferings of poor consumers. Even the middle classes, specially the lower middle classes in urban areas-- who would be considered to have an existence above the poverty line -- are getting affected by the price increases. The incomes of most middle class families are limited in nature and family managers are finding their backs to the wall trying to balance their budgets with their modest or static incomes.
All concerned quarters are clanging their bells hard for the government to sit up and hear the noises they are making to give them relief from price rises. But so far, the response of the government has not been proportionate to the outcry. Government must demonstrate its adequate responsiveness to a demand which is central to the needs of people and also in the vital interest of the economy.
There have been good sides to the economy's management in recent years and the same were discussed appreciatively in the national press. Stable and increasing foreign exchange reserve, better collection of revenues, rising investment rate, etc., were in focus as the features of a resurgent economy. But common people understandably have not so much interest in these macro economic indicators. For them, the main down to earth concern is the cost of essentials or daily consumables and the charges they have to pay for various regular and unavoidable services. In other words, the costs of living for common people is a very vital issue and government's creditable activities in other spheres of the economy may be secondary to common people with costs of living seen as their comparatively higher concern.
The Consumer Association of Bangladesh (CAB) in its last stock taking assessed that percentage increase of costs of living was well over the double digits . Food prices that have a way of creating the justification for increasing the prices of other commodities and services have been on the higher side all throughout 2005. Besides, several increases in the charges of power, gas and fuel oil also helped to raise production costs which in turn led to higher prices and charges respectively of products and services. House rent, costs of education, medical charges, etc., also rose notably. The higher price trends and rising costs of living thereof remain unabated .
Government does not have a direct role to play in regulating prices these days. Prime Minister, Begum Khaleda Zia, referred to this aspect in her address to the nation on last Monday. She drew attention to the rule that under the market economy principles the country currently follows, there is no way for the government to intervene so much in the market mechanisms. Prices are to be left to the freeplay of market forces or the forces of demand and supply. This must have been her implied contention. She also drew attention of countrymen to tax rebate and duty reductions provided by her government to businesses for the latter to pass on the benefits of the same to consumers in the form of lower prices.
But free market principles in many countries are not meant to be freestyle operation of traders or sellers. Government in these countries take steps against undue profiteering. But this has not been the case in Bangladesh. Government is seen as rather motionless as traders increase prices without any justification for the same. Apart from words of advice to traders, government seems to have no effective strategy in place as prices of goods get most unreasonably increased by substantial margins and the high price lines are retained.
The rate of inflation was very recently assessed to be nearly 8 per cent even by official count, surpassing the previous five-year high at 7.92 per cent. Independent and more reliable estimates of inflation are considerably higher at well over 10 per cent. Consumers of the more numerous humble category with limited purchasing power in the country have been feeling the heat of substantially increased prices of essential commodities. Prime Minister Khaleda Zia in her last week's address to the nation also sought to underline that one ought not to look at only price rises but also take into account the rising purchasing power of the people to offset the effect of price rises. But one wonders where from she got a clue in respect of the higher purchasing power of common peopled when that power has diminished substantially from soaring prices and charges. No honest assessment will be able to quite establish that there has been a general increase in the purchasing power of poor people to even match or keep pace with the higher prices not to speak of higher purchasing power enjoyed by them above the price increases.
The free market philosophy is ascendant in Bangladesh. But free markets are found not devoid of regulatory attempts on the part of governments elsewhere, specially when the same relate to goods regularly consumed by common people with modest purchasing power. The market behaviour on the part of traders clearly point to their illegal and unethical profiteering instincts. Investigations from the media and other responsible sources drew the attention of the government many times to deliberate hoarding and related activities by a section of so called business operators to rake in unearned super profits at the expense of the miseries of common people. Market economy principles do not prohibit actions against hoarding and profiteering or the application of the laws of the land in such cases. However, so far, no application of these laws have been noted although their skillful application would not be unjustified under the present conditions.
There has been also regular pleading in the press and elsewhere to revive government's own extensive sale of essential goods at fair prices to take the wind out of the sales of profiteers and hoarders. Full revitalisation and operationalisation of the state owned Trading Corporation of Bangladesh (TCB) was suggested to this end. Government has only very recently gone for half-hearted revival of TCB operations when it should have allowed full scale resumption of its operations, long ago, to defeat the aims of the price manipulators.