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Thursday, October 21, 2010

Economist VS Economic Journalist!

The released inflation data on August 2010 produced an interesting debate among economics practitioners of Bangladesh. The August 2010 data shows that rural food inflation suddenly jumped up to 9.95% from 8.58% in July, while urban food inflation eased down to 8.95% from 9.01% in July. Historically (and as we expect), rural food inflation has been lower than urban food inflation because of the availability of food items in rural areas.

While attempting to give proper explanation to the aforesaid problem, some economists in the Daily Star (Rural poor take big hit from inflation) reasoned the differences in the consumption basket (very easy mathematical explanation) for such divergence between rural and urban inflation.

For your information, food weights in CPI calculation are 60.48% in rural area and 44.53% in urban area. In that, rice weights (boiled coarse weights) in CPI calculation are 23.79% (13.57%) in rural area and 11.28% (5.99%) in urban area.

A counter-argument (also plausible and more economic explanation of the problem) has given by an economic Journalist, Mr. Shamsul Huq Zahid from the Financial Express (when inflation turns discriminatory). He not only gave counter-argument, but also criticized the argument given by some economists. In summary, he rather blamed the absence of government intervention in rural food markets in the period of Ramadan (August 2010), while the government heavily intervene urban food prices through the Open Market Sale (OMS) operation in major cities and geared up its market monitory activities in urban areas.

The latter explanation is more informative!  

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