Home ›› 04 Oct 2022 ›› Front
As soaring inflation is continuously eroding consumers’ purchasing power, there are fears that poverty, which increased during Covid-19, will rise further.
The inflation rate outweighed that of wage growth between February and July this year. From May to July, the difference between the two rates was very high.
This means real wage is declining, causing consumers to lose purchasing power, which is forcing them to compromise on diets.
The continuation of this situation may increase poverty, say economists and the Bangladesh Bank.
Bangladesh Bureau of Statistics (BBS) data shows the point-to-point general inflation was 7.48 per cent in July this year while wage growth was 6.56 per cent.
The central bank in a recent report titled “Bangladesh Bank Quarterly” for the April-June 2022 period said while wages rose in the fourth quarter of the last fiscal year compared to the third, it was still below the inflation rate.
In such a reality, wages are decreasing, it said. It also said the nominal wage rate had continued to move upward from 6.15 per cent in March this year to 6.47 per cent in June. Besides, wage rates in agriculture, industry, and services increased gradually.
“But the nominal wage growth was far less than the consumer price index (CPI) inflation in the fourth quarter of FY22, which manifested the real wage decline and also the loss of purchasing power of the workers in these three sectors,” the report noted.
Prominent economist and former director general of Bangladesh Institute of Development Studies Mustafa K Mujeri told The Business Post the low-income people face massive pressure when purchasing power declines.
“Since they spend a large portion of their income on food, their calorie intake falls when food inflation is high. In this situation, women and children of these families suffer from malnutrition.”
The calorie intake data was last published in the Household Income and Expenditure Survey report in 2016. The report said the average per capita per day calorie intake had declined from 2,318 kilocalories in 2010 to 2,210 kilocalories in 2016 though income rose during this period. Moreover, in July this year, the food and non-food inflation rates were 8.9 per cent and 6.39 per cent respectively. Food inflation slightly declined that month compared to June while non-food inflation increased a bit.
Amid the current inflationary pressure, labour unions have demanded higher wages. Bangladesh Trade Union Centre General Secretary Wajidul Islam told The Business Post the union had submitted a memorandum to the labour ministry last year seeking an increase in minimum wages. “Considering the ongoing inflationary pressure, we will soon hold mass protests and pressure the ministry into accepting our demands.”
Is it the right time to increase wages?
When asked whether it is necessary to increase wages now amid the present inflationary pressure, a senior official of the central bank said no.
He told The Business Post, “Though the inflationary pressure is rising, raising wages at this moment may increase the flow of money in the market. But this will further increase the inflationary pressure.”
Mujeri said the high-income groups may spend extra from their savings to cope with the increased cost of living but the low-income people are unable to do that.
“I think the low-income people’s wages should be increased. If that is not possible, assistance programmes, such as selling essential commodities at subsidised prices through Bangladesh Trading Corporation, should be continued and their scopes should also be widened,” he added.
The beginning of inflationary woes
BBS data from January to July this year shows the wage growth rate was slightly higher than that of inflation only in the first month of 2022.
In February, inflation started increasing compared to wage growth. The difference between wage growth and inflation was the highest between May and July, averaging more than 1 per cent.
Due to the Russia-Ukraine war, the impacts of increased commodity prices in the international market, including in Bangladesh, could be felt from April.
Inflationary pressure further increased when gas prices were hiked in Bangladesh in June. As a result, the difference between inflation and wage growth widened between May and July.
In August, the government increased fuel prices by around 50 per cent on average. The BBS has not yet disclosed data on how the fuel price hike has increased the cost of living.
What does the future look like?
Bangladesh Energy Regulatory Commission held a public hearing recently. It is going to announce new bulk electricity prices.
As a result, the Bangladesh Bank fears that the cost of living will increase again and the number of poor people will also rise, which may impact the country’s gross domestic product (GDP) growth.
The Bangladesh Bank Quarterly report said, “The rise in domestic energy prices may undermine growth, increase poverty, and divert budgetary resources away from productivity-enhancing investment and social protection.”
In this context, noted economist and BRAC Chairperson Hossain Zillur Rahman told The Business Post Bangladesh’s GDP growth in the last decade had not been poverty-friendly.
“It means poverty has not reduced at the same rate at which the economy grew. The Covid-19 pandemic has made the situation worse,” he said.
He further said, “As economic recovery began when the pandemic began to subside, the inflationary pressure compounded the situation. The BBS recently said the current poverty rate is 29.5 per cent.”
The latest BBS data shows the poverty rate was 20.5 per cent in 2019. The poverty rate jumped to 42 per cent during Covid-19, claimed research organisation South Asian Network on Economic Modeling.
