People are working more for less money because of the inflation

Inflation shot up to 6.29% in April, the highest in the last 18 months

Why is inflation so bad? The simple answer is currency is devalued, reducing purchasing power, while the price of goods and services go up, increasing the cost of living. 

For the past few months, prices of essentials have skyrocketed in Bangladesh, first from the pandemic and supply chain issues and then from the Russia-Ukraine war. 

The problem here in Bangladesh is that most companies in the private sector do not adjust salaries with inflation, and many have not been able to give out yearly increments because of the pandemic. These factors have led people to working more, for less money and being able to afford even less goods and services. 

Gas, cooking oil and fuel prices set new records in the global market. Other than these import dependent products, locally produced goods have also seen a rise in prices, without a logical explanation. 

Zahid Hussain, former lead economist at the World Bank's Dhaka office told Dhaka Tribune: “If we look at sector-wise data, we will see that wages in a few sectors increased a bit, which is good news. But the salary in the private sector didn't increase much. This is really worrying because we have a large part of the labour force working in the private sector.”

“To tame inflation, the government should increase policy rates like many central banks, such as the Bank of England, European Central Bank and State Bank of India have done,” he added.

“At the same time, it is necessary to pay attention to the salary allowance of the general employees. Because if there is not enough money in the hands of the people, the money will not flow into the economy. If money does not change hands, the scope of the economy will not increase. At the same time, if inflation continues to rise in this way, people will not be able to save; conversely will try to cover the extra cost by breaking down the savings accounts from the bank or other financial institutes.”

“Of course, it will not be good for our economy. If the amount of money decreases in the bank, it will not be possible to give loans to the manufacturing sector. Even if the government wants, it will not be able to spend money on its development work by taking loans from the bank or other financial institution,” he added.

According to the Ministry of Finance, the government has set a target of borrowing a total of Tk1,13,453 crore from internal sources in the current 2021-2022 fiscal year. Of this, Tk76,452 crore came from banks and Tk37,000 crore from the non-bank sector. Of which, the target for net borrowing from savings certificates is set at Tk32,000 crore.

In Bangladesh inflation has been steadily rising due to the failure of state directors, the income of the private sector employees and workers remained the same as before the pandemic due to a lack of proper guidance from the government. As a result, the cost of living has increased exponentially. 

The point-to-point inflation, calculated by the consumer price index, indicates the degree of increase in the cost of living at a particular point of time in comparison with the same period a year ago. 

It showed that inflation shot up to 6.29% in April, which is the highest in 18 months amid persistently high food and goods prices, said the Bangladesh Bureau of Statistics (BBS).

In March, overall inflation was 6.22%. The previous high was recorded at 6.44% in October 2020.

Tanvir Sarwar works in a mid-level position at an advertising firm and lives with his parents, wife and a newborn baby in Mohammadpur, Dhaka. 

His father retired from banking and his mother and wife are both stay-at-home, leaving him as the only breadwinner of the family. 

But inflation, which has been on the rise since the beginning of the fiscal year, has made it difficult for him to put enough food on the table. Buying good and healthy baby food for his child is his first priority, but often because of the high prices, he has to make very difficult choices

“The gap between my income and expenditure is widening everyday,” he told Dhaka Tribune. 

Due to Covid-19, Sarwar did not get an increment for the last two years. 

“You have to buy rice, lentils, cooking oil, sugar, eggs, and chicken. But in the last few years, the price of these essentials have skyrocketed. 

“My child is three months old and baby products are expensive. Without an increment or an inflation adjustment on my salary I am scared I will not be able to put enough food on the table for my family soon,” he said. 

“To balance my budget now, I either buy less food that we need or have just stopped buying meat proteins altogether.”

Prices have been rising In the international markets as the Russia-Ukraine war started a “wheat war” - the two countries account for 30% of the global supply. The price of wheat immediately doubled since the start of the war. 

Soybean and palm oil prices went up by about 60% in the domestic market owing to an increase in cooking oil prices in the international market.

In most countries of the world, the salary allowance of the employees also increased in line with the increase in inflation or improvement of the living standard at the end of last year. But most of the companies in Bangladesh are not looking to increase the salary allowance of their employees after Covid-19.

According to Professor Mustafizur Rahman, a distinguished fellow at the Centre for Policy Dialogue (CPD): “Due to the real inflation rate, the inflation for goods [rice, oil, transportation costs] has increased so much that the benefit of additional income is not evident.” 

“In other words, even if income increases, if we consider inflation, this growth is definitely diminished,” the economist further said.

“As per GDP, our per capita income has increased. The government is saying that the income of the people in the country has also increased,” he also said.

Inflation rate in April

The inflation rate for nonfood items saw a big jump of 0.35 percentage points to 6.39%, while food inflation dropped to 6.24% from 6.34% a month ago. Moreover, inflation also increased in urban and rural areas, according to a report released by the Bangladesh Bureau of Statistics (BBS) last Wednesday.

The regular BBS release titled "Consumer Price Index (CPI), Inflation Rate and Wage Rate Index (WRI) in Bangladesh" revealed that the average inflation for the last 12 months was 5.81%, substantially higher than the government target of 5.5%. The average inflation was 5.6% in the previous year.

The April inflation of 6.29% means that a product or service that cost Tk100 in April last year is now causing consumers to spend Tk106.29. People have to skimp on consumption if their income remains unchanged or it increases at a rate lower than inflation.

The wage rate index increased by 6.28% in April compared to the same time of the previous year, 1 basis point lower than the inflation rate.

According to the BBS report, inflation in rural areas reached 6.59%, which was 6.52% in March. Food inflation in rural areas reduced slightly and stood at 6.64% from 6.71% in March. 

But nonfood inflation in urban areas stood at 6.50%, a long jump from 6.15% in March. The inflation rate in urban areas also increased to 5.75% from 5.69% a month ago.