Global economy in inflation crisis: what to do

The global economy has been plagued with several problems lately; In particular, abnormally high inflation is slowing the pace of the global economy. There is no country that does not face the problem of hyperinflation. High inflation has become a headache for all economies, whether advanced or underdeveloped. Central banks of different countries adopt common strategies to control inflation. But there is no result. Inflation continues to rise. Inflation is likely to rise further next year. In this situation, the World Bank and other financial institutions are giving a glimpse of a terrible economic recession. No one is denying that a recession is imminent. Now it’s just a matter of waiting.

There are some factors behind the abnormally high inflation that is happening worldwide right now. In general, inflation can occur in a country’s economy for a variety of reasons. But inflation is usually limited to certain countries and regions. But this inflation is not limited to a specific country or region. The whole world is affected by it. Inflation can have various causes. But usually some special factors are responsible for this. Inflation actually refers to a situation where the prices of goods and services in a country, region or the whole world, when other conditions remain normal, rise dramatically. If people’s purchasing power remains unchanged and the prices of goods in an economy rise abnormally, then there is no limit to the suffering of the common people of that country. Producers or suppliers can raise the price of any product they want. But consumers cannot buy products at higher prices at will. Because the consumer’s income or earnings cannot be increased by desire alone. On the contrary, during periods of high inflation, consumer purchasing power often declines. Because his wages or salaries are usually reduced rather than increased. And in some cases, even as income rises, it doesn’t keep up with inflation. This increases consumer suffering.

Three factors can be identified as major contributors to inflation. Among them, the production of important goods and services has been abnormally reduced for any reason. For example, severe flooding in an area can lead to high inflation in that area the following year. Of course, if the country imports goods from outside to meet the desired demand, the situation is different. This type of inflation can be called output deflation. Again, even if product production is normal in a country or region in a given year, if for some reason there is a crisis in the marketing of products produced, product prices can rise abnormally. Such inflation can be called transport or supply inflation. Again, if there is an abnormal increase in demand without increasing the supply of a particular product, the price of that product may rise. This can be called demand-driven inflation. Inflation can occur for a variety of other reasons.

The supply-side crisis plays a key role behind the inflation currently observed worldwide. In particular, the price of food products has risen abnormally all over the world. But last season, the global production of food and other products was quite normal. Although there are problems with the production of food products in some countries or regions, this has not had much of an impact worldwide. So why the high inflation in the world? Currently, the inflation that has disrupted the world economy is not the problem of the production crisis, but the transport crisis has played a role. In particular, the war between Russia and Ukraine is disrupting the normal movement of food products worldwide. These two countries supply 30 percent of the total world food. Meanwhile, Russia’s supply of food products is somewhat normal, but Ukraine cannot export its food products. Last season, 8.6 million tons of food products were produced in Ukraine. Because of the war, they can’t get 30 percent of the food products off the field. Food production in Ukraine is expected to be abnormally low next season as a result of the war. Meanwhile, as a result of economic sanctions imposed on Russia by Western countries, Russia has reduced or completely halted oil and gas exports to European Union countries as a countermeasure. As a result, there is a global energy crisis. Russia plays an important role in the supply of fertilizers to the world.

They have reduced the export of fertilizers to the world market. This has caused the price of fertilizers to rise in several countries. In this situation, the global production of food products will decrease in the coming season, that is for sure. Global transport costs have risen sharply as Russia has cut stocks of fuel oil and gas. In this situation, agriculture will be disrupted next season and food prices will rise abnormally. The high inflation seen worldwide this year has played a major role behind the crisis due to increased transport costs. Next year there will be production problems with the transport crisis. As a result, the production and supply of food products will be greatly reduced. In this context, the World Bank and other international organizations predict a severe global economic recession next year.

What role do central banks in different countries play in managing the looming economic recession and unwanted high inflation? Economists believe that a common strategy for managing high inflation is to reduce the money supply in the market. The government cannot simply impose this task on the private sector. Only the central bank can reduce the money supply in the market by applying some of its common strategies. If they raise key rates, the cost of borrowing from the central bank will rise for scheduled banks. As a result, banks will not be able to borrow and lend from the central bank at relatively low interest rates. This will reduce the flow of credit to the private sector in the final phase. At least 77 central banks around the world have recently raised key rates. The US central bank has raised its key rate at least four times in recent months. The Bank of England has also raised its interest rates several times.

Yet high inflation cannot be brought under control. The latest news is that US interest rates have moved closer to 4 percent. A further rise in the key interest rate threatens in the coming days. The UK has also raised interest rates several times. Yet inflation shows no signs of coming under control. Inflation in the United States stands at 9.1 percent. Inflation in the UK has surpassed 10 percent. The country’s economists believe their inflation could exceed 13 percent by December next year. The average inflation rate of the countries of the European Union is above 9 percent. In this situation, the traditional idea of ​​controlling inflation by raising bank lending rates will seem wrong. Unless the war between Russia and Ukraine ends, it seems unlikely that global inflationary pressures will abate.

Now the question is, what will the situation be in Bangladesh? Inflation in Bangladesh was 7.48 percent in August. In the budget for the current financial year, the inflation target is set at 5.5 percent. But this is absolutely not feasible. Many economists say that if inflation in Bangladesh can be kept below 10 percent in the current fiscal year, it will be a huge success. The measures taken by the Bangladesh Bank to bring the impending hyperinflation under control can be referred to as ‘Ulto Rathe Padayatra’. Bangladesh Bank has raised its policy rate by 50 percent. Bangladesh Bank’s policy rate is currently 5.5 percent. But the interest was not raised. Even the interest to be paid on deposits has remained unchanged. A few years ago, Bangladesh Bank set the maximum interest rate for bank loans at 9 percent under pressure from the country’s leading businessmen. At the same time, the interest rate on deposits has been set at 5 and a half percent for state banks and 6 percent for private banks.

Banks suffer financially from the non-raising of the interest on bank loans after the increase in the key rate. They are forced to invest the borrowed money at 9 percent as before, even though they pay higher interest rates while taking loans from Bangladesh Bank. Attempts to reduce the flow of money to the market by raising the key interest rate fail. At the same time, banks are being robbed of excess deposits as the interest rates on deposits are fixed as before. Because ordinary savers do not hold low-interest deposits with banks. Because a depositor will make a loss at the end of the year if he keeps the deposit in the bank. He will receive a maximum of 6 percent interest on the down payment. And his deposited money will lose 7.48 percent. So the money supply in the market will not decrease in any way. The flow of bank loans will not decrease, but will continue to increase.

At this point, we have to leave the exchange rate of foreign currencies to the market. If the exchange rate of the US dollar is left to the market, import costs immediately increase. On the other hand, export earnings and income transfers from the labor export sector will also increase. Subsidy on imported goods can be made along with reductions in import duties on imported goods to reduce public suffering. Ordinary people suffer a lot. They must be provided with food and other products at relatively low prices.

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