Bangladesh's low-income earners face a painful erosion of their wages due to high inflation, despite some month-on-month income growth over the past year. Analysts say this has left many struggling financially.
Real wages decreased by 1.99 percentage points in the just-ended FY24. This is because the inflation rate was higher than the wage growth rate.
An analysis by The Financial Express found that real average annual wages have been declining over the past few years due to stubbornly higher inflation rates during the calculation periods.
According to the latest data from the Bangladesh Bureau of Statistics (BBS), the 12-month average inflation rate in the last fiscal year was 9.73 per cent, which is 1.99 percentage points higher than the average wage growth rate of 7.74 per cent.
This higher inflation rate, as reflected in the Wage Rate Index (WRI), has eroded the incomes of low-skilled and unskilled workers across 63 occupations. These occupations span 17 sectors, including agriculture, industry and services.
Analysts noted that the subdued growth in the WRI compared to the higher inflation rate has made daily life difficult for low-income people.
The FE's analysis identified the lower wage growth in the manufacturing sub-sector as one of the reasons behind the lower WRI in FY2024 compared to the previous year.
Average wage growth for workers in this sub-sector fell to 7.70 per cent in FY2024, compared to 9.28 per cent in FY2023.
The FE analysis found that the month-on-month wage growth rate since July 2021 has consistently remained below the inflation rate.
The BBS data showed that the average wage growth rate in the WRI in FY2020 was higher than the inflation rate. However, the wages started to erode in the subsequent FY2022 and continued up to just-concluded FY2024.
BBS data shows that real wages were positive in FY2021, with an annual wage growth rate of 6.35 per cent compared to the 5.56 per cent inflation rate.
However, the situation has deteriorated since then.
In FY2022, wage growth was at 6.12 per cent, which fell short of the higher inflation rate of 6.15 per cent.
This trend continued in FY2023 and FY2024, with gaps between wage growth and inflation of 2.96 per cent and 2.69 per cent respectively. In FY2024, inflation reached 9.73 per cent, while wages only grew by 7.74 per cent.
Economists say this persistent high inflation, combined with stagnant wage growth reflected in the WRI, will have severe consequences in the medium term.
They predict a negative impact on employment, production and consumption, pushing many people below the poverty line.
The widening gap between the WRI and inflation over recent months has eroded the real wages of workers.
The BBS calculates the WRI by considering the wages of 63 different occupations across all 64 districts of Bangladesh.
Inflation in Bangladesh rose sharply in August 2022, entering a "9.0 per cent trajectory" due to excessive price hikes. Although it briefly dropped to an "8.0 per cent club" later in 2022 and stayed there until February 2023, it quickly climbed back to the "9.0 per cent club" in March.
This upward trend has continued, with June 2024 recording inflation at 9.72 per cent, nearing double-digit territory, according to the FE analysis.
An important point to note is that nearly 87 per cent of the country's workforce is employed in the informal sector, with most being daily wage earners.
The WRI is a crucial indicator of trends and changes in overall wages for these earners.
It intends to measure how nominal wages for low-paid skilled and unskilled workers fluctuate over time across different economic sectors. Besides, it helps gauge changes in real wages relative to the prices of goods they usually purchase.
Currently, the inflationary pressure has crippled people's life, as prices of almost all essential items at the retail level are on the rise, analysts said.
Dr Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh (PRI), attributed this situation to "failures" in government economic management.
"If your inflationary pressure continues mounting and the gap with WRI maintains, unemployment will be rising, poverty reduction will face setbacks and the economic growth will be affected," he told the FE.
Actually, this is the result of the failure to tame the inflation situation in the country over the last few years, Dr Mansur said.
Since the wages of the manufacturing sub-sector dropped in the last fiscal, it is another big concern for the country, he opined, saying this will push people under the poverty line further.
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