Soaring inflation and stagnant wages are eroding citizens’ purchasing power

| Updated:
08 August 2022 16:08:51

Wage growth in Bangladesh remains stunted by soaring headline inflation and the mismatch is fueling concerns about declining real income for people and its cumulative fallout.

Because of the yawning gap between wages and prices, economists say, people on limited incomes who are mostly breadwinners are losing their purchasing power.

The feared consequences are the decline in the poverty rate, school dropouts and malnutrition.

The Bangladesh Bureau of Statistics (BBS) in its latest release shows that the wage rate was well below consumer price inflation in July. The nominal wage growth rate in July was 6.56% on a one-time basis, although the inflation rate stood at 7.48%, a gap of nearly 1.0 percentage point.

Similarly, wage growth in June was 6.47% on a point-to-point basis against inflation of 7.56%.

In May, the same was 6.38% against an inflation rate of 7.42%. The resumption of inflation over the past few months is mainly due to the war in Ukraine, which has pushed up commodity prices on the international market.

The BBS measured the Wage Rate Index (WRI) as an important indicator to measure the trend and changes in the aggregate wages of employees.

The Wage Index is intended to measure the change in nominal wages of low-paid skilled and unskilled workers over time in different sectors of the economy. It is also used to measure changes in real wages.

Economists familiar with the developments told the EF that wage growth and the inflation rate had no gap in the past, and in some cases wage growth was higher than the inflation rate. But the gap is widening now.

“The poor have lost their purchasing power as inflation erodes real income,” says Dr Zahid Hussain, former chief economist of the World Bank.

He predicts that the poverty rate could increase due to the gap. And malnutrition due to poor diet is likely to increase in the country.

Dr Hussain notes that the BBS data shows the gap between wage growth and the rising cost of living in the country, which is now the widest in many years.

Another economist working at the Dhaka-based Economic Research Group (ERG) says: “Many people have migrated to rural areas during this period of covid-19 and this has inflated the supply of labor in the sector. agriculture, leading to lower wages.”

The ERG economist, wishing not to be named, mentions that there had been a jump in wages in the agricultural sector in the past, especially before the covid-19 period.

Dr Mustafa Kamal Mujeri, executive director of the Institute for Inclusive Finance and Development (InM), told the FE that if the rate of inflation exceeds the growth rate of nominal wages, then their real income will fall. erodes.

“This situation contributes to lowering the standard of living of the people, especially the limited income group,” says Dr. Mujeri.

“The poor avoid spending on health services due to declining real wages.”

It could also lead to dropping out of education [for lower group of people].

Dr. Mujeri mentions that there are social protection programs in the country, but the monthly or annual allowance is very insufficient to cope with the rising prices of basic necessities.

“Allowance of only Tk 500 or Tk 1000 is not enough to help people maintain their current standard of living.”

He believes that Bangladesh now needs a universal social protection system based on equitable targeting to combat such shocks.

The BBS measures wages as the amount of money received in cash or kind in a day for standard daily working hours or the earnings of low-paid labor who work on an hourly basis.

The Wage Index is intended to measure the evolution of the wages of low-paid skilled and unskilled workers over time in the main sectors of the economy, such as agriculture, industry and services.

The wage rate index or WRI has been rebased from 1969-70=100 to 2010-11=100 in the three main sectors of the economy, such as agriculture, industry and services, to the respect of 44 professions comprising 11 professions in the agricultural sector, 22 in industry and 11 professions in the service sector.

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