How long can fixed-income groups cope with higher inflation?

The cost-of-living crisis has kept stressing out fixed and lower-middle-income groups in Bangladesh as inflation has persisted at elevated levels while their salaries and incomes have seen little upward adjustments.

The continuous erosion of the purchasing power has forced some to cut consumption, slashed the monthly budget set aside for groceries, pushed more people into side hustles, and compelled some to dip into their savings and transfer less money to their parents.

Kamrul Hasan Nayem, a resident of Dakshinkhan in Dhaka, says expenses have increased by more than 30 percent in the past one year but the salary has not been adjusted proportionately.

So, the official of an IT firm has been freelancing for more than a year on weekends to bear the additional expenditures.

Nayem and his three-member family used to go on a vacation two or three times annually. But the family has gone on holidays just once in the last one year.

Rezaul Karim, a senior medical promotion officer at a pharmaceuticals company who lives in Chattogram, says he could save a portion of his income a year ago. "Now, I can't save a single penny."

A year ago, the family spent Tk 200 to buy vegetables for a week and now the same cost Tk 500.

Karim used to buy fruits worth Tk 3,000 for his children every month. Now the budget has been cut in half.

He is the breadwinner of a family of four, including two daughters. Many of the wishes of his children can't be fulfilled now, a situation that leaves Karim dejected as a father.

Like Nayem and Karim, there are hundreds of thousands of people in Bangladesh who are struggling to make ends meet amid the higher cost-of-living.

In Bangladesh, inflation has accelerated in the past year and a half owing to a mixture of external and internal factors such as higher commodity prices fuelled by the Russia-Ukraine war.

Food inflation rose 12.37 percent in September, the second successive month it has been above 12 percent. And it was nearly three percentage points higher than the rate seen in the same month a year before. Non-food inflation stood at 7.82 percent.

This means almost everything has become expensive, which has forced people to bring changes to their consumption habits in order to survive.

A recent surge in inflation eroded consumer purchasing power, contributing to a deceleration in estimated private consumption from 7.5 percent to 3.5 percent, according to the World Bank.

Data from the Trading Corporation of Bangladesh showed that the price of coarse lentils increased by 13.16 percent, potatoes by 67.27 percent, local onions 112.50 percent, and broiler chicken by 6 percent in the last one year.

The price of powdered milk has risen 16.43 percent, sugar 45.60 percent and salt 12.33 percent.

In an unprecedented event, the price of a dozen farmed brown eggs matched that of one kilogramme of broiler chicken in the middle of August.

Owing to higher prices, Mahbub Ali, a seller of rod and cement in Mirpur, has stopped going to the kitchen market on Fridays and Saturdays since most people make their weekly purchases on the weekends.

"Instead, I buy vegetables on a working day so that I can get them comparatively at cheaper prices."

Nakib Hossain worked as a fire safety officer at a garment factory in Ashulia of Savar at a monthly salary of Tk 20,000.

He said he had been sending Tk 7,000-8,000 a month to his parents, wife and daughters who live in the village home since joining the factory in 2021.

"Now I can send Tk 2,500 to Tk 3,000. The rest of the money comes from my elder brother and sister."

In January, the financial hardship forced Hossain to discontinue regular payments to the deposit pension scheme and withdraw the money.

Mozammel Hosen, a teacher of a non-government high school in Sirajganj, said that he planted saplings of papaya, pepper and gourd in his yard one and a half years ago so that he does not need to buy vegetables from the markets.

"And I didn't purchase any pepper from the market when it was selling at Tk 700 to Tk 1,200 a kilogramme across the country."

Hosen has a patch of land that he has given to a sharecropper, who cultivates sugarcane, mustard and potatoes.

"As a result, I don't have to purchase potatoes, mustard oil and jaggery. I can use them round the year."

There are also inflation-hit consumers who have switched to cheaper alternatives or stopped spending on non-essentials such as like eating out.

One consumer, who works for a private company, says when one of his colleagues proposed they buy the jerseys of the national cricket team taking part in the World Cup in India, he did not show any interest since the items seem luxury under the current circumstances.

Selim Raihan, a professor of economics at the University of Dhaka, says people are using various coping mechanisms to keep their heads above water since high inflation has lingered.

"Those who have the opportunities are doing additional jobs to meet the additional expenses. But those who don't have the opportunity to work are definitely cutting their consumption of food and non-food items."

The economist says the fixed-income groups are under pressure from both economic and social aspects.

"Many of them have stopped going to social events to cut expenditures."

He urged the government to bring fixed-income groups under the social protection schemes, which currently support the poor, the elderly and other impoverished groups, so that they can handle the price pressure.

Prof Raihan called for increasing the supply of products in the market and removing the anomalies in market management.

Nobody could say how long the low and fixed-income people would have to struggle to make a decent living.

And on Wednesday, the World Bank said absent policy tightening, inflation is likely to remain elevated in the near term and gradually subside if import prices stabilise in the medium term.