Price hike: Adjustments needed
PRICE hike hurts some groups more than others. Surplus owners, producers or hoarders, middlemen, market manipulators, etc benefit from price hike. Fixed income groups, the unemployed, wage earners who are not adequately compensated, and the ultra-poor are worst hit. Their misery is further exacerbated because there is no adjustment, which is the recipe for minimising hardship.
Unexpected inflation means inflation that is triggered by internal or external shocks beyond our control. In such a situation a country cannot afford to sit idle and see the economy go haywire, to the suffering of its citizens. It has to take appropriate measures to cushion itself against the consequences. Some hardship, sacrifice, and change in lifestyle will be necessary. There is no way to escape this. The issue is how to form a strategy for adjustment.
The first step is to read the elasticity of demand of the commodity through empiricism or through study. Elasticity of demand depends on the biological, technological, or psychological dependence of consumers on the product, on the possibility of substitution or the cross price elasticity, and the possibility of innovating a new product or way that would reduce the importance of the commodity. If the elasticity of demand is negligible, the consumer either has to augment his income or draw on his savings to tide over the difficult days, or else he has to reduce his consumption.
A country has wider leverage. Government has control over monetary, fiscal, and coercive instruments. It can augment its resources to defray the cost of administrative and development activities, and also transfer a part of the resources to groups or programs to protect them. A rigorous, scientific, innovative, and non-traditional approach is called for in such circumstances.
The investigation may start from ascertaining the nature of the malaise, which may be seasonal or short-term, or a symptom of a deep-rooted problem. Food stock depletion this March-April was overcome with the bumper boro crop, but price continues to be a nagging problem for reasons other than the food stock. Fuel and fertiliser prices threaten to be a lasting problem, given the supply and demand situation in the world market. It appears that buyers in the fuel market are compelled to pay whatever price is asked for by the producers. Supply of fossil fuel is limited, but demand is soaring with out let-up. Sellers are charging whatever the market can bear, and prices have reached staggering heights.
Adjustment mechanisms adopted by the buyers, at national or global level, leave much to be desired. They are disparate, disjointed, and disarrayed. Nations are guided by their own self-interest. They are reacting not pre-acting, that also in a defeatist manner. Oil importing countries could not exert effective economic or political pressure on the exporting countries to contain the unabated price hike of the product. The oil giants and many powerful groups of the developed countries benefited from the price hike.
Some developed and middle-income countries could partially cushion themselves through appreciating their currency against the declining dollar, to which oil price is pegged. Oil importing least developed countries suffered most because they had no fall-back position. All types of glitches vitiated the economic and social environment of these countries. No developed country, nor any multi-lateral organisation, has so far taken up the cause of helping the least developed countries.
There is no dearth of advisors to warn against further increase of oil price in the world market, but they failed to give such warning in the nineties or the early years of the present decade when oil price was markedly low. While so much innovation and investment were poured into the IT sector, there was at best paltry investment to develop and harvest alternative energy resources like the wind and the sun. They did not develop viable substitutes for fossil fuels, the excuse being that such products would not be economically viable.
It is impossible to justify such a stance because research can produce miracles, as they are promising now. We are now hearing about fuel cell, silicon cell, solar tracker, thin film, luminescent solar concentrator (LSC), wave guide, thin solar cell, and many such promising items. Most of them are not cost effective as yet. Indigenous experimenters in developing countries are also reporting spectacular achievements in developing substitutes for oil, or innovating methods to save oil consumption substantially.
Using natural gas in motorised vehicles has effectively cushioned the owners of these vehicles in Bangladesh. If synthetic ethanol can be commercially developed it might mean a big relief to the consumers. The present use of bio-fuel cannot be supported unconditionally because it diverts food crops to production of oil substitutes, with seriously adverse implications for food security.
At the same time, countries have to make concerted efforts to reduce the consumption of fossil fuel. A bit of additional care, a slight change in habit, and a little sacrifice in consumption may add up to substantial total saving in the import of oil. At the national level, we may look at the consumption points and see how can we reduce consumption without causing hardship to citizens or damaging domestic production. Planned sacrifice is much better than unplanned indulgence for a short time. It is only recently that the government has decided to work out the probable areas of reducing energy consumption. The exercise must include national mobilisation to make the plan effective.
The president of Opec recently said that the price hike of oil was partially due to the declining dollar. Bangladesh currency and oil price both are pegged to the dollar. As the dollar has markedly depreciated, the price of oil has automatically increased. Many countries have cushioned themselves by appreciating their currencies against the dollar. A study by Bangladesh Bank has shown that our currency is substantially under-valued. According to the study, the exchange rate should be Tk 56.87 to a dollar. There may be controversy about the exact figure, but it is true that the dollar is over-valued against taka.
The governor of Bangladesh Bank has said that the taka could not be appreciated because our remittance and RMG export would suffer. We are back to group interest: that between millions of consumers on the one hand and the beneficiaries from remittance and RMG exports on the other. The two interests have to be reconciled to redress citizens' suffering even by a small amount. Any probable adjustment that promises to benefit the common people should not be brushed aside as a non-proposal at this critical stage.
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