Inflation for the Poor in Bangladesh: A Comparison of CPI and Household Survey Data

In most countries, the consumer price index (CPI) is used to measure inflation and is typically based on national-level price data reflecting purchasing patterns of the average consumer. Adjusting for inflation allows one to compare consumption levels over time in real values. In principle, the same information can be provided by changing the values of “cost-of-basic-needs” (CBN) poverty lines. Poverty lines should ideally reflect the minimum cost of meeting some fixed measure of basic needs or some fixed level of utility. Currently, in Bangladesh, a substantial divergence exists between inflation, as measured by the CPI, and the increasing cost of minimum needs, as measured by changes in national poverty lines over time. It is not clear, a priori, which measure of changing costs is better suited for the purposes of the analyses undertaken in the assessment of poverty. This paper uses the Household Income and Expenditure Survey (HIES), a nationally representative household survey, to assess which of the two measures is more informative in the case of Bangladesh. Our survey-based evidence indicates that the changing costs of living, as experienced by the average Bangladeshi, are better proxied by the changes in poverty lines.