DHAKA, April 29: Inflation in Bangladesh crept up again in February, but the economists believe that is unlikely to ease in the coming months despite IMF backed ‘orthodox’ effort of the central bank to contain the inflation rate by tightening the flow of money into the country’s economy. According to the latest Bangladesh Bank data, point-to-point inflation (Base fiscal year 1996=100) increased to 6.38 per cent in February from 5.52 per cent January compared with 5.77 per cent in the same period of the previous year.

Calculated on consumer price index, the figures show that the average annual inflation rate increased to 6.12 per cent during the month, compared to 5.58 per cent a year back.

Both food and non-food prices increased in February to 7.7 per cent and 4.21 per cent respectively, up by 1.2 and 0.3 percentage points from January level.

Economists said that tightening of money supply to contain the inflation is unlikely to be effective, as the government will not cut down the budgetary expenditure ahead of the election year.

“I don’t think that contractionary monetary policy will be effective. The inflation will increase,” said Professor Muzaffer Ahmad.

International agencies like the Asian Development Bank and the UNESCAP in their respective reports recently cautioned that inflation will spur in the coming months due to high fuel prices and acute shortage of food stocks.

The outgoing Bangladesh Bank governor Fakhruddin Ahmed, however, defended the interest rate hike on Thursday at a press briefing saying that would curtail credit flow into the economy through rising interest rate would contain inflation.

Economists explained a wide range of factors that would generate inflation and contractionary monetary policy has little to negate the impacts, arguing that an expansionary fiscal measure will be a bad combination along with the tightening monetary measure.

What caused worry for them is that every year a good chunk of fund is spent for unproductive purposes, which will take toll on the economy heavily with lower growth and higher inflation.

As ruling party lawmakers already demanded a block allocation, asking the finance minister for an election-centric budget, they feared that it would inflate the government spending on unproductive areas.

Moreover, the hints on raising diesel price and the finance minister’s subsequent negation to subsidizing the irrigation at a recent meeting with the Economic Reporters Forum would hamper the agriculture production, they pointed out.

“Agriculture subsidy has to be increased,” said Asaduzzaman, a senior research fellow of the Bangladesh Institute of Development Studies, and added that fund should be mobilized in the productive expenditure like electrification and advancement of agriculture technology.

“I don’t mind high public spending with a mild inflation if the fund is diverted for productive purposes especially in rural sector. But this is not happening in reality,” he said citing that there is hardly in improvement in the power generation.

Economists reckoned that real challenge for the government is how it wedges the gap of deficit financing if it goes for an expansionary budget, pointing to the government’s inclination to reduce dependency on foreign aid.

Besides, the pay-hike of the government officials, which is effective form May 1, in one hand will be an additional burden on the national ex-chequer, on the other it will spur conspicuous spending, they said.