Just as inflation in Bangladesh was beginning to ease, economists have warned that a sudden increase in fuel prices will drive up transport, manufacturing, and supply chain costs, creating renewed inflationary pressure across the economy.
Due to the heavy reliance on diesel across public transportation, agriculture, and industrial manufacturing, a steep hike of Tk 20 per liter is expected to disproportionately impact general consumers and low-income households.
Dr. Nazneen Ahmed, Executive Director of the Centre for Policy Dialogue (CPD), stated that raising fuel prices will generate multi-sectoral economic shocks.
“Fuel price increases have a compounding effect. It impacts agriculture first, followed by transportation, and ultimately trickles down to manufacturing plants and factories,” she explained.
Addressing the scale of the increase, she added: “Tk 20 is a massive hike. Consider how much the operational cost of running a bus from one end of the country to another will rise, and how severely that will impact passenger fares.”
According to Dr. Ahmed, the government should have adopted a balanced and calibrated strategy rather than applying a blanket increase across all fuel types:
Gradual Adjustments: If reducing fiscal subsidies was the main objective, price adjustments should have been phased in incrementally.
Targeted Shielding: Prices for diesel and kerosene should have been kept unchanged, while petrol and octane prices could have been adjusted upward to offset subsidy burdens. Kerosene and diesel are overwhelmingly consumed by low-income families, public transport operators, and agricultural machinery.
Compounding Pay Scale Impact: When viewed alongside upcoming pay scale revisions, the simultaneous timing will heighten inflation expectations and push commodity prices further up.
Dr. Md. Deen Islam, Associate Professor of Economics at Dhaka University, emphasized that the fuel price hike will elevate production, marketing, and borrowing costs across the economy.
“When logistics and distribution costs rise, prices of goods and services experience an immediate upward shock,” Dr. Deen Islam noted.
He highlighted several key structural concerns:
Public Confidence: The duration of inflationary shocks will depend heavily on how effectively the government maintains public trust and market stability.
Real Income Erosion: Without matching wage adjustments in the private sector, real incomes will decline significantly.
Policy Timing: The macroeconomic policy timing appears misaligned, as the domestic economy was not fully prepared to absorb sudden external adjustment shocks.
Subsidy vs. Revenue Trade-off: The government is navigating a delicate balancing act between containing fuel subsidies and managing fiscal revenue pressures.
Anu Muhammad, former Professor of Economics at Jahangirnagar University, questioned the decision-making process, pointing out the absence of prior stakeholder consultations or transparent rationale.
“We had no prior knowledge of this move; it was executed abruptly without any formal consultation,” he stated. “The government provided no clear logical justification. Why was a price hike necessary right now? Did global oil prices suddenly spike yesterday?”
Prof. Anu Muhammad argued that instead of shifting the fiscal burden onto consumers, the government should have reduced taxes and duties levied on fuel:
Tax Adjustment Alternative: The government collects various fees and taxes on fuel imports; reducing these duties could have absorbed price pressures without burdening the general public.
Fiscal Distress: The abrupt action suggests a severe government revenue deficit, prompting policymakers to choose the easiest administrative route.
Social Impact: The decision will inevitably trigger broader price spikes, worsening public sentiment during an already fragile economic recovery.
Professor Mohammad Lutfur Rahman of Jahangirnagar University warned that the price hike will ripple through production costs across all sectors, worsening conditions for low-income earners and daily wage workers.
“Fuel prices are structurally tied to every single commodity in the economy,” Prof. Rahman observed. “Because incomes for private-sector employees and daily wage earners are not rising proportionately, they will bear the heaviest brunt of this decision.”
He voiced deep concern regarding the labor market and macroeconomic stability:
Stagflation Danger: The economy faces the risk of entering a stagflationary phase—characterized by high inflation, diminished purchasing power, widening inequality, and stagnant employment.
Constrained Job Market: With the industrial sector experiencing low growth, job creation will remain constrained, making economic prospects challenging in the near term.
