Transmission of International Commodity Prices to Domestic Prices in Bangladesh

In recent years, Bangladesh has experienced persistent price increases, especially of food items, in the domestic market in the backdrop of global increase in food prices. Such price developments in the international commodity markets have brought into forefront the effects of external price changes on domestic inflation, especially in the developing countries. This raises the issue of the existence and extent of import price pass-through to domestic prices. This paper analyzes the relationship between import and domestic prices in Bangladesh during 2000-2008. Using monthly data, the paper explores the relationship between domestic supply and passthrough elasticity and argues that commodities with higher share of domestic supply face a lower pass-through elasticity of import prices on domestic prices.[Bangladesh Bank WP NO 0807]