High inflation erodes real wages in Bangladesh

Bangladesh's high inflationary pressure has eroded the real wages of its labourers amid volatility in the Consumer Price Index (CPI) over the last few months, analysts and economists said on Monday.

The daily living of the country's low-income people has been battered for a stymied growth in the Wage Rate Index (WRI) compared to the higher inflation rate, they noted.

The higher inflation against the lower WRI would severely affect employment, production and consumption, and many people would slip down below the poverty line, they added.

The Bangladesh Bureau of Statistics (BBS) data showed that the country's WRI was 7.52 per cent in July. On the other hand, the point-to-point inflation rate in the same month was 9.69 per cent.

Over the last few months, the gap between the WRI and the inflation has been becoming wider, thereby eating into the real wages of labourers.

The BBS counts the WRI through calculating the wages of 145 types of low-income labourers.

The country's inflation suddenly jumped onto "7.0-per cent trajectory" in May 2022, which widened further the gap with the WRI.

The inflation rate entered into "9.0-per cent trajectory" in August 2022 that dropped down to "8.0-per cent trajectory" in the later part of the same year.

But it rose in March 2023 and again entered into "9.0-per cent trajectory", as the CPI has been maintaining a higher trend over the last few months, the BBS data showed.

Meanwhile, the increase in month-on-month inflation rate over the last one year was much higher compared to that of the WRI, which widened the gap between expenditure and income of people.

According to the BBS, the gap between the WRI and the inflation rates was very thin before May 2022.

The WRI in April 2022 was recorded at 6.28 per cent, and the inflation rate was almost the same at 6.29 per cent.

In March 2022, the WRI was 6.15 per cent while the inflation was 6.22 per cent, and in February 2022 the WRI was 6.03 per cent while the inflation was 6.17 per cent, according to the BBS.

However, the WRI in May 2022 was recorded at 6.38 per cent while the point-to-point inflation swelled to 7.42 per cent. In June 2022, the wage index increased to 6.47 per cent while inflation reached 7.56 per cent.

The inflation in March 2023 rose to 9.33 per cent while the WRI was at 7.18 per cent like a year ago, as per the BBS data.

Bangladesh's nearly 87 per cent people work in informal sectors, and most of them are daily wage earners.

The WRI is an important indicator for measuring the trend and changes in aggregate wages of the wage earners. It is intended to measure the movement of nominal wages of the low-paid skilled and unskilled labourers over time in different sectors of the economy. It is also used to measure changes in real wages relative to prices of goods they buy.

Currently, the inflationary pressure has crippled people's life, as the prices of almost all essential items at retail level are on rise, analysts said.

Former World Bank Lead Economist Dr Zahid Hussain said the wide gap between the WRI and the inflation is definitely eroding the wages of labourers close to the poverty bottom line in Bangladesh.

"If this gap continues, the wage earners could drop below the poverty line, and the country's employment creation would be severely affected," he told the FE.

"Besides, the BBS's Labour Force Survey 2022 revealed that the (number of) industrial jobs dropped and the WRI did not increase compared to the higher inflationary trend. On the other hand, the value addition to the industrial sector enhanced. All these indicate that Bangladesh's income inequality is growing."

Dr Hussain also raised question over the latest WRI data, saying how the wages in fisheries and construction sectors soared abnormally.

According to the BBS data, the WRI of fisheries sector jumped to 8.59 per cent in this July from that of 4.59 per cent in the previous month. Similarly, the WRI of construction sector rose to 7.39 per cent last month from that of 5.79 per cent in June.

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