Wasiqur Rahman Khan, Professor and Chairperson of the Department of Economics and Social Sciences at BRAC University, discusses price hikes during Ramadan. Professor Khan obtained a BSS (Hons.) and MSS degree in Economics from the University of Dhaka and a PhD in Economics from Indiana University, Bloomington, USA. His areas of interest include applied economics and experimental economics.
What are the primary economic factors that have been historically driving prices up during Ramadan in Bangladesh?
There are certain products which are in high demand during Ramadan like onions, pulses, edible oil, etc. So, naturally, there is an upward pressure on the prices of these items due to elevated demand relative to supply. However, and rather more pertinently, the majority of these items are imported. So if the prices of these items are high overseas they will be high in Bangladesh too. It is this mixture of high demand coupled with more expensive imports which is the primary cause of price rises for a range of products during Ramadan.
The popular and rather persistent narrative of a ‘syndicate’, or in the language of economics, a cartel, suppressing supply to force prices to go up has a lot of traction in the media and public discourse. Yet, as far as I am aware, no empirical evidence has been found to support this hypothesis.
Another reason for Ramadan price hikes is slightly more nuanced. Historically, prices have always risen during Ramadan and the festive period which follows. In light of this experience, consumers, businesses, and workers, in particular, expect prices to rise come Ramadan. Workers will demand higher wages and businesses will charge higher prices to cover the wage increase. Sellers will also anticipate that many workers will be given festival bonuses and may raise prices in response. In short, there would be an inflationary spiral generated as a result of prior expectations. Such expectations-induced inflation is difficult to manage.
Professor and Chairperson,
Department of Economics and Social Sciences
BRAC University
How do global economic trends, such as fluctuating oil prices or trade disruptions, impact the prices of essential commodities in Bangladesh, particularly during Ramadan?
Bangladesh, as a small open economy, is not immune to global economic trends. Furthermore, it is not in a position to influence global prices like, for instance, Saudi Arabia is able to with the price of oil. Bangladesh is heavily import-reliant, especially for energy and a range of food items, and is a ‘price-taker’ in the international market. Consequently, events overseas such as the wars in Ukraine and the Middle East, and the effective closure of the Red Sea as a conduit for trade, have very adverse impacts on global supply chains which, in turn, have knock-on effects on domestic prices. Thus, an increase in the price of fuel oil, for example, will translate into a price increase for a variety of items. These problems will tend to amplify during the month of Ramadan due to increased demand for certain goods.
AN INCREASE IN THE PRICE OF FUEL OIL, FOR EXAMPLE, WILL TRANSLATE INTO A PRICE INCREASE FOR A VARIETY OF ITEMS. THESE PROBLEMS WILL TEND TO AMPLIFY DURING THE MONTH OF RAMADAN DUE TO INCREASED DEMAND FOR CERTAIN GOODS.
What measures could be most effective in ensuring price stability during Ramadan?
Two measures come to mind. A relaxation, or complete removal, of import duties on Ramadan essentials like onions and pulses for the duration of the month, and the creation of ‘buffer stocks’ which can be used, when the time comes, to satisfy excess demand. It is also important to have a diversified import base and not be too reliant on a single source for the majority of imports. However, there are practical obstacles to implementing these measures. Firstly, relaxation or removal of import duties will have national revenue implications and reimposing them after Ramadan could have political ramifications. Creating buffer stocks of perishable items like onions and potatoes may require the construction of large refrigeration facilities, an expensive and time-consuming process.
Speaking as an economist, I would not support direct price controls since interference in the market mechanism can generate unintended and undesirable consequences, like the creation of black markets for essentials. Prices could be monitored to prevent rampant profiteering and of course, provided evidence emerges, cartel-like behaviour should be suppressed.
What are the limitations of a transient interim administration in addressing price volatility during Ramadan?
It would be imprudent to ignore the events of the recent past and our current state of affairs, especially on the eve of Ramadan. The primary remit of the interim administration is the maintenance of stability and laying the groundwork for free and fair elections. We need to understand that some of the measures discussed above to control price volatility may, for a variety of reasons, be infeasible for a transient interim administration to implement. Consequently, people should not be surprised if aggressive anti-inflationary measures are not executed by the current administration.
From an academic perspective, how can research and education contribute to addressing challenges like price volatility during key periods such as Ramadan?
One of the functions of academia is to inform. Thus, research and the dissemination of research findings to the broader public are of importance. While price volatility in general is an area of active macroeconomic research there needs to be a greater focus in Bangladesh on volatility during the key Ramadan period. BRAC University, and my Department, in particular, can contribute in this regard by directly channelling its research efforts on Ramadan price volatility. An empirical investigation of the presence or absence of syndicates or cartels as a contributing factor to Ramadan price inflation could be a useful place to start.
It is also important to emphasise the role of education, especially pre-tertiary education, in creating awareness of the underlying causes of price inflation and the measures that could be used to control it. The more informed and aware the public is, the lower the propensity for inflation-inducing expectations to take hold.
Photograph by Shihab Mohammad
