Policy Brief  

Bangladesh’s Inflationary Bias

The challenge in this policy note is to look beyond the transitory factors in Bangladesh that have moved relative prices up (or down) to identify the longer-term factors that generate and sustain general price increases and to explain why those factors endure.

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In this policy note, inflation “is most conveniently (and neutrally) defined as a sustained rising trend in the general price level, or — what is virtually the same thing — a rate of expansion of money income greater than the growth of real output.” Economists focus on inflation as the sustained upward trend of all prices to distinguish it from episodic changes in the prices of individual goods and services. These price changes, for example, in food, building material, transport, and fuel, result from demand or supply shocks that typically reverse themselves.

The challenge in this policy note is to look beyond the transitory factors in Bangladesh that have moved relative prices up (or down) to identify the longer-term factors that generate and sustain general price increases and to explain why those factors endure. The research examines the causes and correlates of inflation in Bangladesh and discussing the consequences for the country’s longer-term growth and development. It also suggests how the country’s “inflationary bias” might be eliminated.

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