Energy crisis, fuel price hikes fuel inflation: CPD

The recent energy crisis and repeated fuel price hikes have intensified inflationary pressures in Bangladesh, further straining household finances and eroding purchasing power, the Centre for Policy Dialogue (CPD) said.

Speaking at a media briefing titled “Bangladesh Economy in FY2025-26: Multidimensional Challenges During Transition” on Thursday, CPD Executive Director Fahmida Khatun said the economy remains vulnerable due to a combination of domestic structural weaknesses and external shocks.

The briefing was organised to present CPD’s assessment of the economy during the outgoing fiscal year ahead of the national budget for the fiscal 2026-27. CPD Distinguished Fellow Dr Mustafizur Rahman and other senior researchers also attended.

Fahmida Khatun identified inflation as one of the economy’s most pressing challenges. According to CPD, overall inflation stood at 9.04% in April 2026, while non-food inflation rose to 9.57%, driven largely by higher fuel, transport and service costs.

She said wage growth has failed to keep pace with inflation, significantly reducing the purchasing power of ordinary people, particularly low- and fixed-income households.

“Due to structural weaknesses within the economy and various external shocks, Bangladesh remains in a risky economic situation,” she said.

CPD’s review showed that fuel prices rose sharply between December 2025 and May 2026. Diesel prices increased by 15% during the period, while petrol, octane and kerosene prices went up by around 20%.

The increase in fuel costs quickly filtered through to the transport sector, raising bus fares and freight charges. Higher transportation costs subsequently pushed up the prices of essential commodities, adding further pressure on consumers.

The think tank also highlighted a sharp increase in cooking fuel prices. The price of a 12-kg LPG cylinder rose from Tk1,341 in March to Tk1,885 in June, marking an increase of more than 40% in just three months.

According to CPD, the recent Middle East crisis exposed Bangladesh’s heavy reliance on imported fuel and underscored its vulnerability to global supply disruptions.

Beyond energy costs, the organisation identified weaknesses in market management and supply chains as key drivers of inflation.

Fahmida Khatun said multiple layers of intermediaries and market concentration often result in unusually high retail prices, making consumers more vulnerable during periods of economic uncertainty.

Concern over US tariffs

CPD Distinguished Fellow Dr Mustafizur Rahman expressed concern over newly imposed US tariffs on Bangladeshi products, arguing that political and economic considerations are influencing the measures.

He said issues such as child labour and forced labour are being used to justify additional tariffs, while geopolitical and bilateral trade interests also play an important role.

According to him, Bangladeshi products already face an average tariff of 15% in the US market. An additional 19% tariff under proposed arrangements would raise the total to 34%, while another 10% levy imposed under special authority could push the overall tariff burden to 44%.

He warned that such a tariff structure could significantly undermine the competitiveness of Bangladeshi exports.

Citing Bangladesh Bureau of Statistics data, Dr Rahman said around 32 lakh street children in Bangladesh are often forced into labour because of economic hardship.

However, he argued that punitive tariffs are not an effective solution to the problem.

“If the United States genuinely wants to eliminate child labour, it could provide Bangladesh with targeted financial assistance instead of imposing additional tariffs on exports,” he said.

Revenue shortfall, bank borrowing add pressure

CPD’s report also highlighted growing stress on macroeconomic management due to weak revenue collection, rising government borrowing and fragilities in the banking sector.

According to the report, State of the Bangladesh Economy in FY26, revenue collection grew by only 6.9% during July-March of the current fiscal year.

CPD said achieving the annual target would require an unrealistic 84.6% growth during the remaining months.

The implementation rate of the Annual Development Programme (ADP) fell to 35.4%, the lowest level in eight years.

To finance the widening budget deficit, the government has increasingly relied on bank borrowing. By March, it had already utilised 98.5% of its annual bank borrowing target.

As a result, private-sector credit growth slowed sharply to 4.72%, creating obstacles to investment and employment generation.

CPD warned that the banking sector’s overall capital adequacy ratio has dropped to a historic low of negative 2.93%, with specialised banks facing particularly acute challenges.

To address the situation, the think tank recommended stronger market monitoring, modernisation of revenue administration and banking reforms free from political interference.

It also cautioned that legal reform proposals alone would be insufficient unless resistance from vested interest groups is overcome.

Private investment confidence yet to recover

Dr Rahman said private-sector confidence has yet to fully recover despite some political stability following the formation of an elected government.

He noted that private-sector credit growth remains around 5%, while imports of capital machinery and intermediate goods continue to show weak momentum.

“Investors are still waiting to see what kind of revenue measures, tariff structures and structural reforms will be introduced in the upcoming national budget,” he said.

Although the government has introduced various refinance schemes and policy measures, sustainable inflation control and employment generation will ultimately depend on stronger private-sector investment, he added.

“In Bangladesh’s economy, if government initiatives account for one taka, private-sector initiatives account for four taka,” he said.

He added that investor confidence remains in the early stages of recovery and that the future trajectory of entrepreneurship, employment and economic growth will depend heavily on the proposals announced in the upcoming national budget.