Consequences and causes of inflation: A study in the ... - Wbiaus.org

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Abdullah, Shamsher & Chowdhuryaugmented Dickey-Fuller (ADF) tests. The ADF tests are unable to differentiate wellbetween non-stationary and stationary series with a high degree of autocorrelation(West, 1988) and are sensitive to structural breaks (Culver and Papell, 1997). Paul,Kearney and Chowdhury (1997) also did not include any error correction model to checkthe existence of any long-run relationship. The Error Correction Model (ECM) test isessential to see whether an economy is converging towards equilibrium in the long runor not. The ECM also shows short-run dynamics.Although the relationships among inflation, output growth, inflation uncertainty andoutput uncertainty have been investigated extensively in the empirical literature fordeveloped countries (e.g., Grier and Perry 1998; Davis and Kanago, 2000; Fountas etal. 2006; Fountas and Karanasos 2007)2, a lesser work is done for economies intransition. Few exceptions are Gillman and Nakov (2004), Dibooglu and Kutan (2005),Gillman and Harris (2008), Mladenovic (2007), Thornton (2007), Erkam and Cavusoglu(2008), and Susjan and Redek (2008). Gillman and Nakov (2004) examined therelationship between inflation and output growth in Hungary and Poland, and found thatinflation affects growth negatively in both countries. Gillman and Harris (2008) alsofound a robust negative effect of inflation on growth in a panel of 13 transition countries.Dibooglu and Kutan (2005) studied the sources of inflation and output movements inPoland and Hungary, and found that monetary shocks affect output in Hungary, whilesupply shocks dominate output movements in Poland.Mladenovic (2007) examined the relationship between inflation and inflation uncertaintyin Serbia, and concluded that high inflation invokes high uncertainty, while highuncertainty negatively affects average level of inflation in the long run. Thornton (2007)studied the inflation and inflation uncertainty relationship for 12 emerging economiesincluding Hungary, and found that there is positive bidirectional causality betweeninflation and inflation uncertainty in the case of Hungary. Erkam and Cavusoglu (2008)investigated the linkage between inflation and inflation uncertainty in seven formerSoviet Union countries. They found that inflation rate increases uncertainty in threecountries (Azerbaijan, Russia, and Ukraine) while uncertainty increases averageinflation in Kyrgyzstan and Russia, but reduces it in Azerbaijan. Finally, Susjan andRedek (2008) provide strong evidence on negative effect of transition specificuncertainties on economic growth for a panel of 22 transition countries. We will focus onmacroeconomic factors (transportation cost, oil price, food production, political stabilityetc) that might cause inflation.3. Study MethodsThis article is mainly based on secondary information. Hakim (2000) suggestedcombining secondary data from various sources to increase the validity of theinformation. The research design has been conducted by secondary data method toanalyze inflation pattern of Bangladesh. Secondary data have been collected mainlyfrom journals, books and previous studies. Suitable data have been extracted,organized, analyzed, illustrated and interpreted in the report with proper reasoning,analytical judgment, clarification and explanation. So we don‟t need the sample size.Research has been conducted on the basis of 2000-2011 inflation data frame in thecontext of Bangladesh. The reasons to choose data between this time frame is toanalyze inflation in recent context especially in the light of global scenario after 9/11attack. After 2001, world politics and food production scenario are moving in newdimension. Recent Arab spring is also contributing reshaping the world scenario andpolitics. Researchers do not follow any particular model to analyze, because our aim is93
Abdullah, Shamsher & Chowdhurynot to build any relationship. Researchers participatory observed the current world andBangladesh scenario as well as analyze secondary data sources to find out thereasoning.The research has been presented in written form in this article to interpret theinformation gathered and convey the research findings. The article has been made bypopular reporting in order to facilitate the readers in better understanding of the report.No technical terms have been used in the study. However, researchers do not find anyholistic study relevant to this filed that can help government to implement policy in nextdecade. This qualitative study is improved study in the light of recent world scenario andit will give a clear direction for next era.4. Results and Discussions4.1 Findings of Objective IInflation Scenario in BangladeshExperience of high inflation is not new in Bangladesh. The country experienced asignificant rise in the inflation rate in the recent past. The table I and accompanyinggraph (figure II) in appendix summarize the inflation scenario of Bangladesh for the lastdecade.In Bangladesh the average inflation (general) in FY 2000 was 1.94% while it is found9.76% in FY 2011. But during these years changes in inflation did not follow anymonotonic pattern. Bangladesh faces a tougher challenge in bringing down burgeoninginflation. The latest Bangladesh Bureau of Statistics (BBS) data shows that inflation hadincreased to 11.97 % (on point-to-point or monthly count) in September, the highest in10 years. Food inflation, which was 12.7 per cent in August, had increased to 13.90 %in September while food inflation in urban areas had increased to 14.69 % in the samemonth from 12.94 % in August.The rate of inflation is higher in the food sector than in the non-food sector. Despite that,the non-food sector is not lagging behind in the rate of increase. From the above figure,it is visible that within the span of one year, inflation in the sector increased by seventimes. Side by side with the prices of food items, house rent, transport cost, andexpenditure on clothing and shoes have also increased. As a result, the people arepassing their days amid hardship. Additional money is going out of their pockets on astatic income. The government in the budget for the current financial year had a plan tokeep inflation at 7.5 per cent but it has cross the limit. Usually a rise in the food pricealways increases the prices of other goods. When expenditure increases on purchasingfood items, the prices of other goods are also raised in a race with that. When the priceof food increases, it also pushes up the house rent. Side by side with that, the prices ofshoes and other goods will also be increased. As a result, the prices of non-food itemswill rise at an abnormal rate.4.2 Findings of Objective 2Reason/Causes of Inflation in Recent Context in BangladeshBoth internal and external factors have contributed to the current inflation inBangladesh. As Bangladesh is not self-sufficient in terms of food production, the country94
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