Falling inflation offers little relief as wage growth lags, squeezing real incomes

On paper, the inflation situation in Bangladesh is improving, but the squeeze on households continues as wage growth has slowed further, lowering real incomes.

Updated figures from the Bangladesh Bureau of Statistics (BBS) show overall inflation fell to 8.26 percent in August, the second month of the 2026-27 fiscal year.

But wage growth dropped to 8.05 percent, widening the gap between what people earn and what they pay for goods and services.

August's inflation figure marks the lowest the indicator has hit in 10 months.

Wage growth, meanwhile, has hit its lowest point in seven months.

Data reveals wage growth has now trailed inflation for four and a half consecutive years.

In January 2022, wage growth stood at 5.92 percent, briefly outpacing overall inflation of 5.86 percent.

But from the following month, February, onward, spending began outrunning earnings and never looked back.

This prolonged mismatch has steadily eroded the “real income”, or purchasing power, of the public, particularly low-income and limited-income groups.

A point-to-point inflation rate of 8.26 percent in August implies that a basket of essential goods and services costing Tk 100 last year now costs Tk 108.26.

By contrast, the 8.05 percent national wage growth rate means someone who earned Tk 100 last year now earns Tk 108.05 this year.

In other words, the cost of living has climbed faster than incomes have grown. That has forced people to either trim their spending or dip into savings.

Selim Raihan, executive director of the South Asian Network on Economic Modeling (SANEM) said: “We would have welcomed a scenario where wage growth kept pace with falling inflation.

“But the current data paints a worrying picture, inflation is placing extra strain on real wages. In effect, even as nominal income rises, higher market costs are eating it away."

With inflation outpacing wage growth for a prolonged stretch, he said real incomes were shrinking “alarmingly”.

"People's spending power is shrinking. Many are dipping into savings, others have none left to dip into."

Jahangir Alam Khan, director of the Dhaka School of Economics, said: "Prices across the board remain steep. On top of that, everyone is paying more for gas and electricity.

“The bigger issue is that even after the peak Boro harvest season, prices of rice, our staple food, haven't come down."

The economist recommended strengthening market monitoring rather than relying solely on tight monetary policy to keep inflation in check.

Inflation, Wages In Flux

During the July Uprising in 2024, headline inflation spiked to 11.66 percent before fluctuating between 9 percent and 12 percent amid the political transition, while wage growth remained anchored around 8 percent.

Fiscal 2025-26 opened with single-digit inflation that oscillated between 8 percent and 9.5 percent, before moderating to 8.32 percent in July and 8.26 percent in August.

Meanwhile, the BBS wage index hovered near 8 percent throughout the year, easing from 8.22 percent in July to 8.05 percent in August.

The bulk of the national workforce operates within the informal sector, where wage-based employment predominates.

Informal Sector Bears The Brunt

The bulk of the country's workforce operates in the informal sector, almost entirely on a wage basis.

According to BBS's latest labour force survey, 84 percent of the employed population works in the informal sector.

Roughly 88 percent of rural workers and 74 percent of urban workers fall into this category.

This vast, socially unprotected workforce bears the brunt of rising prices more than anyone else.

The BBS compiles its wage rate index monthly, gathering data across 44 occupational categories, including farm labourers, transport workers, fishermen, day labourers and construction workers.

As per August data, wage growth was lowest in the industrial sector at 7.97 percent. The services sector saw wages grow 8.25 percent, while agriculture recorded 8.07 percent growth.

The wage rate index has its limitations. BBS's index does not represent the earnings of the entire labour market, salaried employees and relatively higher-income professionals fall outside its scope.

As a result, the index largely captures the pressure between income and inflation for lower-wage workers. It offers no clear picture of how much strain the middle class is under.