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Food Price Rises Fast, But Eases Slowly

In Bangladesh, prices of food items have a correlation with the prices of those items in International market. Hence, subsequent impact of price changes in international market should be similar for both increase and decrease of prices. However, things don't exactly work the way it should in this country. This relationship is stronger in case of increase i.e. prices of food items in local market responds faster to prices increase in international market, but prices decrease in international market takes time to reflect in local market.

Price Changes Paradox
Price Changes Paradox

A recent World Bank study titled "Bangladesh Development Update " has mentioned that 12-13% of total import of Bangladesh are food items and wheat, cooking oil and sugar tops the list. Any changes of prices in the international market is immediately reflected in local prices. Among these three, sugar price responds quickly.

The study notes that a 1% price change has 46% price impact on local market. In case of wheat, it is 26% and 16% for cooking oil.

Any price increase of Sugar in International market will be reflected in local market within 54 days whilst price decrease will be reflected after 66 days. In the same way, price increase for Cooking oil will have effect within 120 days while decrease of the same will have effect after 189 days. For wheat, a price increase is reflected after 87 days and a decrease is reflected after 159 days.

Not only there are gaps in response time, there are also gaps in price level too. A 10 taka increase in Cooking oil price will increase the local price by 3.40 Taka while a 10 Taka reduction will reduce local price by 1.10 Taka. Likewise, a Tk.10 price increase of Wheat will increase local price by Tk.4.40 while the same decrease will reduce the price by Tk.1.40.

Sugar is an exceptional item which has positive impact for consumers. A Tk.10 increase will increase the local price by Tk.4.30 while reduction of same amount will have Tk.4.80 reduction in local price.

WB lead economist Dr. Jahid Hossain notes that it's not unusual to have varying impact in local price compared to international price level. "We have seen such phenomena in different Asian countries, even in some developed countries", Dr. Hossain said.

He observed that syndicates among importers, supply deficiency, and hoarding mindset of businessmen are the key reasons for such fluctuations in price changes. Besides, consumers in the country are less worried about price compared to neighbouring countries and they are less knowledgeable about international price trend. He also pointed finger to local media which boldly highlights price increase and give less importance to price decrease. Ultimately, the fruits of prices decrease is only passed to Businessmen instead of consumers.

H/T; Banikbarta

Nezam Uddin is a Co-founder at Future Startup and looks after finance.

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