Global Inflationary Pressures

Rate hikes fail to curb rising prices in B’desh

Countries worldwide are grappling with high inflation and low growth, prompting diverse monetary policy responses across regions. Global inflationary pressures are posing significant challenges for economies, as nations struggle to manage rising prices while maintaining economic momentum.

India has experienced relative success in managing inflation, with the Reserve Bank of India (RBI) aiming to keep inflation within the target range of 2-6 per cent amid uncertain global conditions. Despite disruptions to global supply chains and rising agricultural prices, the RBI has implemented necessary interest rate adjustments to curb inflationary pressures.

Bangladesh’s economy exemplifies stagflation, characterised by both high inflation and low growth. The Bangladesh Bank, the nation’s central bank, faces the dual challenge of reducing inflation while stimulating economic growth. Although the bank has raised policy interest rates three times recently, inflation remained stubbornly high at 10.89 per cent as of December 2024.

According to The Economic Times, the RBI stated, “The Reserve Bank of India aims to maintain inflation within 2-6% amid global uncertainties.” This effort has been highlighted in the Economic Survey 2023-24, which commended India’s inflation performance compared to other economies, noting that it has outperformed many global counterparts.

In contrast, Bangladesh’s economy exemplifies stagflation, characterised by both high inflation and low growth. The Bangladesh Bank, the nation’s central bank, faces the dual challenge of reducing inflation while stimulating economic growth. Although the bank has raised policy interest rates three times recently, inflation remained stubbornly high at 10.89 per cent as of December 2024.

Economist Protik Bardhan, writing in Daily Prothom Alo, commented on Bangladesh’s economic challenges, stating, “Economists argue for balanced measures beyond interest rate hikes for Bangladesh’s economic recovery.” This reflects a broader consensus among economists, who emphasise that interest rate hikes alone are insufficient and advocate for coordinated fiscal policies and market stabilisation strategies.

Meanwhile, the Eurozone is also contending with sluggish growth, prompting the European Central Bank (ECB) to cut interest rates to 2.75 per cent as part of its strategy to encourage borrowing and stimulate economic activity. ECB President Christine Lagarde remarked, “We are committed to maintaining inflation at 2% over the medium term,” underscoring the ECB’s focus on achieving price stability amid economic challenges.

However, the Eurozone’s overall economic performance has been lacklustre, with GDP growth stagnating in the fourth quarter of 2024. Analysts had anticipated positive growth, but major economies within the bloc, such as Germany and France, reported contractions.

Similarly, Nigeria is struggling with rising inflation, as the Consumer Price Index (CPI) reported an increase to 34.80% in December 2024, driven by soaring food and energy prices. The National Bureau of Statistics highlighted the severity of the situation, with annual food inflation surging to 39.84 per cent. This has begun to affect citizens’ livelihoods, raising concerns about affordability and living standards.

Dr. Muda Yusuf, Chief Executive Officer of the Centre for the Promotion of Private Enterprise, emphasised, “To mitigate inflationary pressures, the Central Bank of Nigeria should pause monetary policy tightening and interest rate hikes to reduce business operating costs.” This call for a pause reflects a growing recognition among economic stakeholders of the delicate balance required to manage inflation without stifling economic growth.

As the global economy faces similar inflationary pressures, each country’s monetary policy responses vary significantly based on local economic conditions, political landscapes, and external pressures. Policymakers worldwide are increasingly aware of the inherent tension between curbing inflation and fostering economic growth.

What remains clear is the need for comprehensive approaches to address the multifaceted challenges posed by inflation. It is not merely about adjusting interest rates but also about creating economic environments conducive to investment and growth. Governments and central banks must strive to achieve this through innovative fiscal policies and coordinated strategies.

The current state of global inflation management underscores the interconnectedness of economic policies. The immediate focus should be on devising effective measures to stabilise prices, promote economic recovery, and safeguard citizens’ quality of life amid rising prices and economic uncertainty.

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