ORIGINAL PAPER Inflation, inflation uncertainty and relative price variability in Bangladesh Monir Uddin Ahmed 1 • Md. Moniruzzaman Muzib 2 • Md. Mahedi Hasan 3 Received: 18 September 2015 / Revised: 25 July 2016 / Accepted: 23 August 2016 Ó Eurasia Business and Economics Society 2016 Abstract Developing countries are often busy with the rate of inflation and its effects on the economy. Although the monetary policy of developing countries is concerned with business fluctuations and its effects on stability, recent studies are giving importance on the relationship between inflation and relative price variability (RPV). In recent macroeconomic theory, RPV generates the fundamental distortions of inflation, which disrupts the informational content of nominal price. It has long been popularly believed that the relationship between RPV and inflation is positive and stable. Using disaggregated monthly CPI data for Bangladesh from 2002:7 to 2013:6, this study tries to tackle the following problems: (1) whether the relation- ship is linear? (2) whether the relationship is sensitive to the models of inflation forecasting? (3) whether the model is stable? This study finds that the relationship is not linear, which contrasts with the earlier works on RPV-inflation relationship. Our semiparametric estimations show that the relationship is U-shaped. The estimation of the parametric quadratic function shows that the model of inflation forecasting is sensitive to this relationship which makes that it is the unexpected inflation which matters for RPV. Although the equation is specified, but it is not stable over time. & Monir Uddin Ahmed monirahmed05@gmail.com Md. Moniruzzaman Muzib zamanmuzib@gmail.com Md. Mahedi Hasan mmhasan.stat@gmail.com 1 Department of Economics, Shahjalal University of Science and Technology, Sylhet 3114, Bangladesh 2 Department of Economics, Mawlana Bhashani Science and Technology University, Tangail 1902, Bangladesh 3 Department of BBA (General), Faculty of Business Studies, Bangladesh University of Professionals (BUP), Dhaka 1216, Bangladesh 123 Eurasian Econ Rev DOI 10.1007/s40822-016-0055-8