Protect the poor from food inflation
Mr. Shahidul Islam and Hossain Mohammed Omar Khayum |
April 17, 2022 9:46:56 PM
After decades of relatively low inflation, food and non-food commodity prices are rising around the world. Massive fiscal stimulus packages in advanced and developing countries, supply chain disruptions, hoarding savings and relatively loose monetary policies amid the pandemic and lately the war in Ukraine are propelling inflation world.
In Bangladesh, CPI (Consumer Price Index) inflation recorded 6.2% in February, which is above the Bangladesh Bank’s inflation target of 5.3% for 2022. The prices of certain food products, namely soybean oil, coarse rice, sugar and flour, increased by 44%, 34%, 32% and 21% respectively during the last quarter of 2021 compared to the pre-Covid levels (last quarter 2019). However, prices of other staples such as onions, potatoes and poultry have come down markedly.
However, the biggest inflation risk comes from the price of energy which has been very volatile given the war in Ukraine and the geopolitical tensions involved. The government plans to adjust energy prices upwards. If this is done, inflation could be fueled further, far exceeding the central bank’s inflation target.
Rising food prices are particularly worrying for low-income and marginalized groups. A longitudinal study conducted by the Center for Peace and Justice (CPJ), University of Brac, shows that the average and median monthly income of marginalized people comprising the rural poor, slum dwellers, ethnic minorities living in Chittagong Plains and Hill Tracts was about 10% lower in December 2021 than pre-pandemic level.
Previously, a survey by the South Asian Network on Economic Modeling (SANEM) conducted in late 2020 found that the pandemic had pushed 42% of people into poverty. This indicates that the income of many households has not yet been recovered.
CPJ’s 3rd round of survey conducted in December 2021 suggests that reducing food consumption (43%), followed by accepting low-wage jobs (33%) and dipping into savings (25 %) were the most reported coping strategies. of marginalized people. Just over a third of households took out loans in December, and buying food was a predominant reason for borrowing.
More than 90% of survey respondents said they were facing psychological problems due to the Covid-19 pandemic, and household difficulties in obtaining food (78%) during the pandemic was the main cause. of distress.
Amid the pandemic, rising food prices could further derail the recovery of marginalized households, as food, beverages and tobacco account for 58% of CPI weights, which is even higher for rural households (61%).
There is no official CPI for disadvantaged people. A CPI calculated based on the survey of SANEM and the General Economics Division of the Bangladesh Planning Commission conducted in 2018 shows that average food consumption accounts for 61% of total consumption expenditure of marginalized urban households and 65% of rural households. The relatively higher marginal propensity to consume of the poorest segment of the population means that food inflation absorbs a large part of their income.
Thus, given the loss of income during the pandemic, insulating marginalized populations from food inflation should be one of the government’s top priorities. In fact, this part of the population expects a lot from the government regarding the recovery from the pandemic. The overall proportion of households who believe their community would be included in government economic stimulus initiatives has risen in successive CPJ surveys, with 56% of households showing an inclination in December.
There are several ways to protect marginalized people from food inflation. One approach is to use existing support networks, including those extended during the pandemic, under the supervision of local government institutions. However, the coverage of these networks needs to be extended.
Two-thirds of households in CPJ’s survey said they received no help from any source in December. In addition, the proportions of financial assistance and food support have decreased over successive rounds of surveys. The survey also shows that the majority of households that mentioned receiving help received it from ‘local government’, as this was the most commonly used channel for government.
Since monetary value erodes rapidly during inflation, more efforts should be made to provide food support to households in economic difficulty. CPJ’s survey shows that about 10 percent of households had access to government-subsidized food. This coverage should be expanded, ensuring that marginalized groups are treated fairly in the distribution of family cards used to purchase subsidized food from the Trading Corporation of Bangladesh (TCB). Nearly half of households are dissatisfied with the government’s food distribution, according to the CPJ survey. It is necessary to assess the underlying causes.
The double shock of pandemic-induced loss of income and food inflation makes marginalized communities even more vulnerable. Inflation, in particular, is a de facto regressive tax that hurts the poorest the most and worsens income distribution. The provisions of food support programs designed and implemented to mitigate the adverse effects of the pandemic should be reviewed in the context of rising prices of basic necessities.
Microdata generated by CPJ and other academic institutions can help map the specific needs of vulnerable groups based on age, gender, location, disability, and other socioeconomic indicators. The increased use of household-level data in policy formulation can better meet the needs of marginalized groups, protecting them from new vulnerabilities.
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