Executive summary:

Inflation, growth rate, unemployment and exchange rate are some major factor in financial
analysis. Increasing cost of production and loss of purchasing power indicates high inflation.
Unemployment occurs when the people without job are actively seeking for a job but cant find
one. The trend of the growth of the real GDP is called Growth Trend. Economic growth is
primarily driven by improvements in productivity. However, inflation & growth rate have both
positive & negative relationship depending on situation. Inflation and unemployment have a
negative relationship. All the factors are interrelated and at the time of analyzing one must
consider each and every factor with equal consideration. Unemployment rate has an inverse
relationship with inflation rate maintaining contractionary & expansionary policy. Inflation
fluctuates all the time because of the fluctuation of the money supply. But in recent years,
international affairs are also influencing to increase the inflation rate.

Introduction:
Inflation is defined as a sustained increase in the general level of prices for
goods and services. It is measured as an annual percentage increase.
Inflation has become a well-entrenched phenomenon in many countries.
Somehow it seems that the general price level can only rise implying that
there is an inflationary bias in society. Consensus has it that inflation is likely
to impose considerable economic costs (Fischer and Modigliani, 1978). Rising
rate of inflation has become a serious concern in Bangladesh in recent years.
The prices of essential commodities have gone up, and so is the cost of
living. The countrys vast multitude of poor and unemployed people is having
a difficult time surviving. According to the estimates by the BBS, the inflation
rate, on a point-to-point basis, in 2011-12 stood at a 10 year high of 10.62
percent. The food inflation rate was 10.47 per cent, and BBS reported that
inflation on a point-to-point basis in nonfood items 11.15 per cent
(Bangladesh Economic Update, 2011). But in 2014-15 the inflation rate is
6.40 percent where food inflation is 6.68 and nonfood inflation is 5.99
percent. The relationship between growth rate and inflation is a controversial
theory. Inflation behavior may play an important role in price formation. By
affecting real interest rates, changes in inflation may lead to changes in
aggregate demand, which may then influence prices. Bangladesh remains a
poor, overpopulated, and inefficiently-governed nation. Although more than
half of GDP is generated through the service sector, 45 % of Bangladeshis

are employed in the agriculture sector with rice as the single-most-important

product. Consumer prices in Bangladesh increased by 6.24 percent year-onyear in September of 2015, after rising by 6.17 percent in the previous
month. The annual increase was boosted by higher non-food costs, as
electricity and gas prices went up. Inflation Rate in Bangladesh averaged
6.63 percent from 1994 until 2015, reaching an all time high of 12.71
percent in December of 1998 and a record low of -0.02 percent in December
of 1996. Inflation Rate in Bangladesh is reported by the Bangladesh Bureau
of Statistics. The Gross Domestic Product (GDP) in Bangladesh expanded
6.12 percent in 2014 from the previous year. GDP Annual Growth Rate in
Bangladesh averaged 5.64 percent from 1994 until 2014, reaching an all
time high of 6.71 percent in 2011 and a record low of 4.08 percent in 1994.
GDP Annual Growth Rate in Bangladesh is reported by the Bangladesh Bank.
Unemployment Rate in Bangladesh decreased to 4.30 percent in 2013 from
4.50 percent in 2012. Unemployment Rate in Bangladesh averaged 4.50
percent from 2003 until 2013, reaching an all time high of 5.10 percent in
2009 and a record low of 4.30 percent in 2006. Unemployment Rate in
Bangladesh is reported by the Bangladesh Bureau of Statistics.

Methodology:
Sources of Data:
We have collected secondary data from FY 2005-06 to 2014-15 of Inflation rate, GDP growth
rate, Unemployment rate and exchange rate against USD.
Data analysis:
Graphs of time series are plotted by Microsoft Excel.
Limitation of the Study:

Secondary data are not authentic in many of the information sectors.

Because of time shortage many related area cant be focused in depth.
Website in different organization of Bangladesh contains poor information.
Recent data and information activities are not very much reliable.

Inflation:
For global price hike Bangladesh has to go with high inflation rate. The rise of petroleum (as
Bangladesh is a importing one) and other food items causing high level of inflation. Since the
beginning of the current decade and up to 2011 global prices of fuel and food followed an
increasing trend which got transmitted into the countrys domestic economy. There has been
some respite from high inflationary pressure towards the end of 2012-2013 due to the global
meltdown and the resultant price fall of major commodities in the global market. Recent fall
down of price of petroleum has brought the inflation rate to a tolerable level. In 2014-15 the
inflation rate is 6.40 percent. The major source of high inflation in Bangladesh is high food
inflation. The reason behind this assumption is that food carries a large weight in the CPI of
Bangladesh.

Table 1: Food and Non Food Inflation

Year

General Inflation

Non Food
Inflation
FY 2005-06(OB)
7.16
7.76
6.40
FY 2006-07(OB)
7.20
8.11
5.90
FY 2007-08(OB)
9.94
12.28
6.32
FY 2008-09(OB)
6.66
7.19
5.91
FY 2009-10(OB)
7.31
8.53
5.45
FY 2010-11(OB)
8.79
11.33
4.15
FY 2011-12(OB)
10.62
10.47
11.15
FY 2012-13(NB)
6.78
5.22
9.17
FY 2013-14(NB)
7.35
8.57
5.54
FY 2014-15(NB)
6.40
6.68
5.99
Note: OB= Old Base: 1995-96=100, NB=New Base: 2005-06=100
Source: Based on Bangladesh bank Data

Food Inflation

Inflation became a common phenomenon during 2005-06 to 2011-12. At that time inflation rate
increased except the year 2008-09. The food inflation also increased during that period and in
2007-08 it was the highest with 12.28 percent. No surprise, the nonfood inflation is the highest in
the year 2011-12 when the average inflation was also the highest. The data on inflation reveal
that inflation in Bangladesh is influence by food and fuel prices. Higher food and fuel prices
obviously affects inflation rate. The recent declining trend in food and non-food inflation may be
explained by the decline in global commodity prices like petroleum, rice, pulses ,onion, edible
oil and other food items and higher domestic production of food due to favorable weather
condition and some effective measures taken by the government which included conducting open
market operation, exemption of duties on essential commodities, sufficient import of food grains,
strengthening of internal procurement and its supply, expansion of subsidies on fuel and fertilizer
and widening of social safety net programs etc.

Comparision of general, food and nonfood inflation

14
12
10
8
6
4
2
0

Fig: Different Categories of Inflation

Inflation and CPI:

Fig: Annual Inflation Rate.

Fig: Monthly Inflation Rate.

GDP and Inflation:

The relationship between inflation and economic output (GDP) plays out like a very delicate
dance. For stock market investors, annual growth in the GDP is vital. If overall economic output
is declining or merely holding steady, most companies will not be able to increase their profits,
which is the primary driver of stock performance. However, too much GDP growth is also
dangerous, as it will most likely come with an increase in inflation, which erodes stock market
gains by making our money (and future corporate profits) less valuable. Most economists today
agree that 2.5-3.5% GDP growth per year is the most that our economy can safely maintain
without causing negative side effects.

The Gross Domestic Product (GDP) in Bangladesh was worth 173.82 billion
US dollars in 2014. The GDP value of Bangladesh represents 0.28 percent of

the world economy. GDP in Bangladesh averaged 39.78 USD Billion from
1960 until 2014, reaching an all time high of 173.82 USD Billion in 2014 and
a record low of 4.30 USD Billion in 1960. GDP in Bangladesh is reported by
the World Bank.

Table 6: Inflation and GDP growth rate over the years.

Year

General Inflation

GDP Growth Rate

FY 2005-06(OB)
7.16
6.7
FY 2006-07(OB)
7.20
7.1
FY 2007-08(OB)
9.94
6.0
FY 2008-09(OB)
6.66
5.1
FY 2009-10(OB)
7.31
5.6
FY 2010-11(OB)
8.79
6.5
FY 2011-12(OB)
10.62
6.5
FY 2012-13(NB)
6.78
6.0
FY 2013-14(NB)
7.35
6.1
FY 2014-15(NB)
6.40
6.1
Source: Bangladesh Bank data and ADB (http://www.adb.org/countries/bangladesh/economy)
GDP growth rate in Bangladesh is in average form. The highest GDP was in the FY 2006-07. But
from 2010-11 to 2014-15 it is fluctuating between 6.0 and 6.5.

12
10
8
6
General Inflation
4

GDP Growth Rate

2
0

Bangladesh is considered as a developing economy. Yet, almost one-third of Bangladeshs 150m

people live in extreme poverty. In the last decade, the country has recorded GDP growth rates
above 5 percent due to development of microcredit and garment industry. Although three fifths
of Bangladeshis are employed in the agriculture sector, three quarters of exports revenues come
from producing ready-made garments. The biggest obstacles to sustainable development in
Bangladesh are overpopulation, poor infrastructure, corruption, political instability and a slow
implementation of economic reforms. But this growth is not very high compared to other
SAARC countries.

GDP and Inflation in SAARC Countries:

Country

Date /
Period

GDP-Growth
rate

Date/
Period

Inflation Rate

Afghanistan

03/2014

6.40

04/2015

-1.50

Bangladesh

06/2014

6.12

05/2015

6.19

Bhutan

12/2014

4.00

03/2015

6.28

India

06/2014

5.70

05/2015

5.01

Maldives

12/2014

8.50

04/2015

1.70

Nepal

06/2014

5.48

04/2015

6.90

Pakistan

06/2014

4.14

05/2015

3.16

Sri Lanka

03/2015

6.40

05/2015

0.20

Source: SAARC Group on Statistics (http://www.saarcstat.org)

If we present it graphically then we can understand the average point of Bangladesh among
SAARC.
10

Growth and Inflation rate

-2

Fig: Relation between GDP and Inflation in SAARC Countries.

Inflation and Exchange rate

Two important factors for the economy of any country are its inflation rates and GDP growth
rate. It could be possible that these economic factors can directly influence the exchange rates
movement of any country. It is applicable for Bangladesh also. With these expectations here it
has been tried to find the relationship among the exchange rates fluctuations of Bangladesh with
USD.
Year

General Inflation

FY 2005-06(OB)
FY 2006-07(OB)
FY 2007-08(OB)
FY 2008-09(OB)
FY 2009-10(OB)
FY 2010-11(OB)
FY 2011-12(OB)
FY 2012-13(NB)
FY 2013-14(NB)
FY 2014-15(NB)
Source: Bangladesh

7.16
7.20
9.94
6.66
7.31
8.79
10.62
6.78
7.35
6.40
Bank data

BDT Exchange
Rate against USD
67.08
69.03
68.60
68.80
69.18
71.17
79.10
79.93
77.72
77.67

Appreciation/
Depreciation of
BDT against USD
-8.50
1.26
0.42
-0.79
-0.55
-6.34
-9.38
5.21
0.17
-0.22

The exchange rate is increasing as inflation goes up. In FY 2012-13 it is the highest with 79.93
taka per dollar.
100
90
80
70
60
50
40
30

BDT Exchange Rate against

USD

20

General Inflation

10
0

Inflation and Unemployment rate

In Bangladesh, the unemployment rate measures the number of people
actively looking for a job as a percentage of the labor force. Unemployment
Rate in Bangladesh decreased to 4.30 percent in 2013 from 4.50 percent in
2012. But in FY 2013-14 again rise to 4.5 percent. Unemployment Rate in
Bangladesh averaged 4.50 percent from 2003 until 2013, reaching an all
time high of 5.0 percent in 2009 and a record low of 4.30 percent in 2006.

Year

General Inflation

Unemployment
Rate

FY 2005-06(OB)
7.16
4.2
FY 2006-07(OB)
7.20
4.3
FY 2007-08(OB)
9.94
4.4
FY 2008-09(OB)
6.66
5.0
FY 2009-10(OB)
7.31
4.5
FY 2010-11(OB)
8.79
4.5
FY 2011-12(OB)
10.62
4.5
FY 2012-13(NB)
6.78
4.3
FY 2013-14(NB)
7.35
4.5
FY 2014-15(NB)
6.40
Source: http://www.theglobaleconomy.com/Bangladesh/Unemployment_rate/ and
human development report 2014.

FY 2014-15(NB)
FY 2013-14(NB)
FY 2012-13(NB)
FY 2011-12(OB)
FY 2010-11(OB)

General Inflation

FY 2009-10(OB)

Unemployment Rate

FY 2008-09(OB)
FY 2007-08(OB)
FY 2006-07(OB)
FY 2005-06(OB)
0

10

12

Fig: Relation between Inflation and Unemployment rate.

The unemployment rate in Bangladesh and other countries is defined as the number of
unemployed people as percent of the labor force. The labor force includes the people who are
either employed or unemployed, i.e. who don't have a job but are actively looking for one. The
labor force does not include people who are not looking for work, children, and the retired.
The unemployment rate seldom declines below 4-5 percent even during boom times. There are
always people who move between different sectors of the economy or between cities. When the
economy goes into recession, then unemployment can reach much higher numbers, sometimes
even in the double digits.

Findings

The major source of high inflation in Bangladesh is high food inflation than non food
inflation (petroleum and others). The reason behind this cause is that Bangladesh import
high volume of food items and consumption of food items does not affected highly by
price changes.
GDP growth rate is consistent over the recent years although there is some inflationary
effect.
There is strong negative relationship between inflation and appreciation of domestic
currency (BDT). When inflation goes up, the value of BDT depreciates.
Unemployment rate hasnt changed significantly for changes in inflation rate.
Unemployment rate is consistent from FY 2009-10. So the relation between this two is
very insignificant.
Recent inflation rate is higher than most other SAARC countries except Bhutan and
Nepal.

Conclusion
This report has an attempt to explain the inflation rate and its relations with some
macroeconomic indicators like GDP growth rate, unemployment rate and exchange rate briefly.
The main objective of this report is to find out whether fluctuation of inflation rate has any effect
on those macroeconomic indicators or not. From the study, it is noticeable that inflation has very
insignificant relations with those indicators except exchange rate. Generally unemployment rate
doesnt affect by inflation but over time, the growth in GDP causes inflation, and inflation
begets hyperinflation. Once this process is in place, it can quickly become a self-reinforcing
feedback loop. This is because in a world where inflation is increasing, people will spend more
money because they know that it will be less valuable in the future.

References:

https://www.bb.org.bd/econdata/index.php
https://www.bb.org.bd/openpdf.php
http://www.bbs.gov.bd/home.aspx
http://203.112.218.66/Home.aspx
http://www.theglobaleconomy.com/Bangladesh/Unemployment_rate/
http://www.adb.org/data/main
http://www.imf.org/external/data.htm
http://hdr.undp.org/en/content/human-development-report-2014
http://www.saarcstat.org
http://www.adb.org/countries/bangladesh/economy
http://www.investopedia.com/articles/06/gdpinflation.asp