How is life when inflation outpaces wage growth
The country’s food inflation surged 12.54% in August, the highest in the last 12 years, while the growth in labour wages remained at just 7.58%, according to the Bangladesh Bureau of Statistics (BBS).
Soaring food prices have placed a heavy burden on lower-income people, compelling them to spend a significant portion of their wages on groceries, when their income growth has significantly lagged behind the food inflation.
According to the Bangladesh Bureau of Statistics (BBS), the country's food inflation surged 12.54% in August, the highest in the last 12 years, while the growth in labour wages remained at just 7.58%.
Asian countries, from India to Indonesia to China, saw an accelerated wage growth last year as companies and factories, driven by intensified fight for skills and talents during post-Covid recovery, offered higher pays to help workers cope with the surging inflation. A year later, workers in those economies are better-placed with wage hikes higher or at least on a par with the inflation rates in some cases.
A Willis Towers Watson survey found India the highest among 27 Asia-Pacific markets with 9.2 average wage growth last year, while China had 6% increment in workers' income.
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Another WTW survey reported average US wage growth of 4.2% at the end of 2022, when US inflation was over 6%. As US inflation dropped to 3% now, American employees are likely to have their wage growth higher than the rate of price hikes.
But workers in Bangladesh are not fortunate like those in other economies. Their wage growth remains 5 percentage points less than the food inflation, which peaked to a 13-year high in August.
Their fight for meeting two ends is more intense today than in April last year, when their wage growth was a bit higher at 6.28% than the food inflation at 6.24%. In August, food inflation was almost double the rate in April last year, while wage growth saw a little over 1 percentage point rise.
In this scenario, low-income individuals, including the working population of the country, are compelled to consume less food than necessary and reduce their cost of living by decreasing their demand. Experts express concerns about the potential long-term consequences, such as malnutrition and a lack of education, for a significant portion of the population.
They say that rising food prices are forcing low-income individuals, including labourers, to make significant sacrifices in their lives. Many are resorting to consuming lower-quality food, while others are cutting back on their children's education expenses. Some are even forgoing necessary healthcare, and many are relocating to more affordable, low-rent housing. Thus, Bangladesh is falling behind in its pursuit of the crucial Sustainable Development Goal (SDG) of ensuring access to nutritious food.
"The adverse consequences of wage growth lagging behind inflation are evident both in research findings and in everyday life," Hossain Zillur Rahman, executive chairman of the Power and Participation Research Center (PPRC), told The Business Standard.
He said one of the goals of the SDGs is to gradually move the country towards nutritious food, adding, "But it goes in the complete opposite direction. Because low-income people are reducing the food list. Reduced intake of high-nutrient foods."
The economist said, "Another big problem is that people are cutting other expenses more than food. Especially the cost of education. It is likely to have negative effects in the long run.
"This trend has been going on for a long time. But recently, it has reached a new level. It is very sad that Bangladesh is progressing well in some indicators but is lagging behind in one of the most important indicators, human resources."
This high inflation is also negatively impacting the overall economy by leading to reduced demand. Experts assert that the decline in demand for agricultural and industrial products and various services is expected to impact economic growth.
In recent months, the prices of essential food items that cater to the nutritional requirements of the less fortunate have surged in the country's markets. Particularly, prices for pangas and tilapia fish varieties, poultry, eggs, milk, and pulses have all experienced increases. Additionally, edible oil, sugar, potatoes, onions, and salt prices have also risen. Consequently, the same amount of money can now be spent on a smaller quantity of these products.
According to statistics for December 2021, Bangladesh has the lowest wage among the seven South Asian countries – Pakistan, Sri Lanka, India, Myanmar, Cambodia, and Indonesia.
Bangladesh Minimum Wages Board is supposed to fix minimum wage every five years for workers in 63 occupations—17 in agriculture, 30 industrial and 16 in service sector. Its chairman Liakot Ali Mollah last month said new wages for garment workers will be decided in November. The latest minimum wage at Tk8,000 was effective in December 2018.
A significant portion of the country's workforce operates within the informal sector, with a considerable number engaged in agriculture, fishing, construction, transportation, and the restaurant industry. Many in this sector lack a fixed salary structure.
Furthermore, there has been no recent wage increase for formal sector workers. In the past few months, there has been no announcement of a new wage structure in any of the sectors where the government sets minimum wages. A new wage structure has been announced in the tea industry alone without a pay hike.
The largest workforce in the country is employed in the garment industry, and a new wage structure for this sector is currently being developed. In response to soaring inflation rates, trade unions within the garment industry have proposed an increase in the minimum wage from its current rate of Tk8,200 to Tk23,000.
According to data from the Trading Corporation of Bangladesh (TCB), as of 10 September, farm egg prices had surged by 56.7% compared to April 2022, while broiler chicken prices had increased by 4.4%.
Besides, the price of potatoes has surged by 150%, salt prices by 20%, sugar prices by 71%, fish prices by 33.3%, and onions by a staggering 142.9%. Additionally, coarse rice prices have seen a 5.4% increase."
In view of this high inflation, the government has implemented a 5% increase in the salaries of government officials and employees based on their basic salary. Additionally, the salaries of lower-level employees have been raised by a minimum of Tk1,000, and these changes have been in effect since last July.
Sayema Haque Bidisha, professor of economics at Dhaka University, told TBS, "Our study has found that people with lower incomes spend a larger portion of their earnings on food. When inflation surpasses wage growth, it significantly impacts the daily lives of this demographic. In recent years, inflation has outpaced wage increases, and people are finding ways to adapt to this situation.'"
She said that it appears that many people are reducing their consumption of some foods. Many are giving up their children's tuition. Others are changing their child's school to cut costs.
"Many have reduced their consumption of milk, eggs, fish, and meat. Some people are consuming less nutritious food instead of such nutritious food. In this way, people are adapting to education and health. As a result, nutrition, food quality, and productivity are negatively affected. This is having a negative impact on human capital development as a whole," she added.
Professor Khaleda Islam, director at the Institute of Nutrition and Food Science, told TBS that mothers and children are most at risk when the family's ability to buy food is reduced. Mothers and children eat less when they buy less food because of the price, adding, "Mothers and children will be malnourished. In addition, the elderly are also suffering."
She said people suffer from malnutrition when they do not get food according to their needs. Short-term malnutrition can be recovered if financial conditions improve. But if they suffer from malnutrition for a long time, it can no longer be fulfilled. The stunting rate of children increases with long-term malnutrition, and their IQ level decreases. A child's brain development takes place for up to five years. When the child's IQ level decreases due to malnutrition, the child cannot survive the competition like normal children throughout their lives; they fall behind in everything, including studies. Malnutrition weakens the immune systems of all types of people, including children.
It is said that $1 spent on nutrition gets $60 back. And even if you don't invest, the loss is about $60. If working people suffer from malnutrition, it affects their work and productivity.
