Management Studies and Economic Systems (MSES), 2 (4), 279-286, Spring 2016
© ZARSMI
Impact of Price Hike on the Standard of Living of Middle Income
People: A Study on Sylhet City, Bangladesh
*1 2
Muhammad Abdul Latif, Mohammed Hanif
1
Department of Business Administration, Sylhet International University, Sylhet. Bangladesh
2
Department of Supply Chain Management, Institute of Chevron Bangladesh, Sylhet, Bangladesh
Received 23 November 2015, Accepted 21 June 2016
ABSTRACT:
The purpose of this research is to identify the impact of price hike on the living standard of middle income
people. The researchers tried to identify the alternatives of middle class people in face of price hike or inflation.
This descriptive analytical research is conducted by random probability sampling. The data were collected by a
well designed questionnaire that was tested by experts in this field to ensure the validity of the research. The
responses from 98 households are processed and analyzed by frequency distribution, cross tabulation and Chi-
square tests. The impact of price hike (minor, medium and major) is tested in respect of compensate by more
income, change in food habits, change in accommodation and education. The result showed that there is a small
reaction in the minor inflation but in medium and major inflation most of the respondents seeks alternatives to
face the crisis. A significant difference in the reaction is found in most of the cases with the levels of price hikes.
But the middle income people have the tendency to maintain the status quo in their life style and standard of
living. The management may generate new products or services for the middle class people by keeping the
mindset of them in the time of price hike. The authority should consider compensating the middle class in various
ways to restore their consumption level to continue the economic activities of a country.
Keywords: Price hike, Middle income class, Living standard
INTRODUCTION
The increase of price of essentials rapidly huge population. In spite of its utmost efforts
and continuously is called inflation. The increase and growth prospects Bangladesh is yet to reach
of prices of products and services is a regular to the stream of the middle income countries and
and inevitable event of every economy whether to improve effectively the quality of life of its
it is developed or developing. The supply of people because of its age old poverty, structural
money increases the demands of the products weakness of its economy and lack of productive
and services that result in increases of prices of capacities for development. Inflation can be
products and services. It influences every caused by the sudden disruption in supply of
country, negatively as well as positively. But in products by flood, draught, shortage of power,
the most of the cases inflation is an important raw materials etc. It can also be caused by
factor leading to social and economic instability increases of aggregate demand than supply.
and disorder. Bangladesh is a small nation with a Impact of global price hike is one of the most
*Corresponding Author, Email: novalatif@[Link]
Muhammad Abdul Latif; Mohammed Hanif
important causes of price hikes in Bangladesh. the low inflation is caused by 1%-5% of price
Inflation means a continued increase in the increases.
aggregate or general price level in an economy. Uncompensated inflation reduces incomes,
Inflation means there is an increase in the cost of thus consumption and savings, both in aggregate
living. On the other hand a price hike is the and with particular reference to certain social
increase of any single product or service price. A groups (e.g. Middle Income People, as surveyed
10% price hike means the cost of that particular here). Inflation hits the poor harder than the rich
item has increased by 10%. When most prices because of high expenditure- income ratio, low
grow, there is inflation, provided the other prices purchase due to price rise, essentials becoming
don't drop too heavily. If inflation is not unaffordable, deeper dissatisfaction of needs due
compensated by nominal increases of income, to inability in purchasing, weaker bargaining
people become poorer. Low, medium and high power in compensating the price hike. The
rate of price hike attract the daily attention of suffering of middle class is almost similar as the
households and decision maker differently. The poor.
income of people is another determining factor Day to day increase in prices of
in reaction of households in different levels of commodities snatch money from savings of
price hikes. consumers and uncertainty of prices, both food
Standard of living is maintained by certain and non-food items, generate tension among
level of wealth, comfort, material goods and middle income people and search the
necessities available to a certain socioeconomic alternatives toward earn more and more. Middle
class in a certain geographic area. The class people in Sylhet, like other part of
socioeconomic classes are determined mainly by Bangladesh, is struggling to find the appropriate
the income levels of population. combination of expenditures (i.e. food,
Middle income people stands in the middle education, clothing, transport, health, recreation
of high income who are enjoying high standard etc.) to maintain their existing living standard
of living and the low income people who are provided that their income is almost fixed and
maintaining very low standard of living. They inflation rate is going up. The study is to identify
have the financial security to make both ends the alternatives selected by the middle class in
meet and have a little margin of safety. They different levels of price hike in their essentials
have some economic security with health like food, accommodation, education etc.
insurance and a retirement plan, or some savings 2. Literature Review: Around 80-90% people
in the bank to meet any emergency, send their of Bangladesh are the people of limited income.
kids to school, or even provide small loan to a The price spiraling of essential commodities is
family member who wants to start up a business. one of the main problems of these people. The
Middle class is essential to maintain the demand price of raw materials, transportation cost, fuel
of the products. The reducing capacity of middle cost, processing cost, manipulations are the main
class in inflation results in reduction of demand causes of price hike. The authority becomes
in the market that ultimately reduce the failure in most of the time in controlling the
production of firms and become the cause of job price that increases the suffering of customers
loss that brings disaster in the economy. (Hasan, 2005). The natural disasters that disrupt
Different types of inflations can have widely the production of agricultural products creates
different determinants, effects and remedies. crisis in the supply of food items. The failures of
There is no strictly binding definition of ranges Govt. in compensating the shortage for
of intensity in price increase. The hyperinflation inefficiency or worldwide paucity accelerate the
is the extreme level with increases of prices of price hike and peoples’ sufferings (Rahman and
commodities by three digit percentage points. Ahmed, 2008). Other important cause of price
The extremely high inflation is identified by hike and inflation is the haphazard money supply
increase of prices by 50%-100%. The high in the economy (Hussain, 2008). The middle
inflation leads to 30%-50% of increase in price income people referred by middle class
level of essentials. The moderate inflation is supposed to have high skill/education, medium
mentioned by increase in price by 5%-30% and business or are retired professions. They are
280
Manag. Stud. Econ. Syst., 2 (4), 279-286, Spring 2016
non-manual labor, salaried and high skilled self d. To identify the alternatives taken by the
employed in the occupation structure (Siddiqui middle income people in respect of education in
et al., 1990). Standard of living indicates the the time of price hike
consumption of necessaries, comforts and
luxuries by particular class of people. Standard RESEARCH METHOD
of living depends upon income and the middle Research Design: This study is a descriptive
class people have a mediocre income level with analytical research done on the basis of thinking
a small savings after expenses for consumptions. of the respondents regarding the steps to be
Around 80% of their income is consumed by taken in the face of price hike of essentials. The
food (50%), clothing (18%) and lodging (12%). research is designed to carry out by
Inflation refers to rising price levels of questionnaire method to give the respondents
consumed products and services (Lokanathan, sufficient time of thinking before answer the
1994). It is found that inflation has both positive questions. The questionnaire contained
and negative impact on the economy (Mehrara dichotomous, close-ended and open-ended
and Moghadasfer, 2012). The effect of price hike questions. The validity of the questionnaire was
converting the lower income people to marginal tested by senior researchers of that field. The
and the middle income people to the lower Cronbach Alpha of 0.699 ensure about the
income people. People with a decent salary of reliability of the research.
one time may become poorer with the spiraling
of price. People have to cut many items from Sampling Design
their list by terming these necessary items as The stratified probability research is adopted
luxury at the time if inflation (Rahman, 2008). to get the opinion of people of different
People of middle class have to manage their professions regarding their course of action in
survival by using different techniques in face of time of inflation. The middle income people are
price hikes. The minimization in consumption is selected according to the perception of people
one of the techniques to survive. But it brings regarding their position in the society according
stagnation in economy. Famine, hidden hunger to the income category rather than actual range
comes due to the inability of purchasing the of income.
necessary items in face of price spiraling (Barua,
2009). In Bangladesh mainly three important Data Collection
reasons for unabated inflations are identified as; The middle class families of Sylhet division
a. excess money supply, b. the structural issues (Bangladesh) have been considering as the
of the market- cartel and exploitable behavior of sampling frame. This frame was based on the
actors and c. external shocks (Murshed, 2007). claim of people rather than original income
range because the researchers’ viewpoint on the
Objective of the Study expenses habit of people. They (researcher)
Broad Objective opined that expenditure pattern depends on the
To measure the impact of price hike on the perception of people about their income status
standard of living of middle income people in the data were collected from the respondents of
the Sylhet City 18 years age and above regardless of sex and of
the middle income family. The researchers have
Specific Objectives tried to collect the data from 150 respondents
a. To investigate response of middle and were able to collect from 100. But two of the
income people to price hike in Sylhet City in interview was can cancelled due to inconsistency
respect of taking alternatives to raise income to in the answers.
compensate the price hike.
b. To identify the response of households Analysis Procedure
in their purchase habit of food items in the time The information was processed through
of price hike. Microsoft Excel 07 and SPSS 19 to get the
c. To identify the alternatives taken by the outputs in the form of frequency distribution,
middle income people in respect of cross-tabulation and Chi-Square tests.
accommodation in the time of price hike.
281
Muhammad Abdul Latif; Mohammed Hanif
Data Analysis and Findings of the Study only 5 of 98 respondents try to increase their
Goal of this research is to find the impact of income by doing overtime at their offices. Then
the price to the living standard of the middle there are more reactions found from the
income people. To achieve this goal we have respondents at higher levels of price raise. At
maintained demographic variation and aimed above 40% of price raise, 36 out of 98
middle/lower middle income/fixed income respondents mentioned different activities they
household. 90% of the total observed person would do to face the overall price raise (table 2).
(OP) we have surveyed are their household head Among the different activities, there are utilizing
and 86% is married. So, in the time of hike idle resources to increase the income of
he/she has to take decision how he/she manage consumers. Searching to increase the income by
his/her family. Among the OP 25% is business doing overtime is other frequently used
man and 36% is skilled professional. 18% is technique. Most harder alternative is switch to
below 30 years old, 58% is 30-45 years old and another job- it is also used to maintain the family
rest of them is above 45 years old (table 1). We expenditures in face of trouble creating price
have selected those household who do not have spiraling,
that much space to accommodate additional
burden of price hike to maintain the same level The Chi- square test verifies that (p value in
of standard of living. Most of them are fixed χ2<0.05) with the variation in price hike, the
income people with limited scope of alternative behavior of households significantly changed
source of income. To evaluate the impact of with the level of price hike to maintain the life
inflation on their standard of living we have style and standards.
articulate the following criteria: Food
We found food expense pretty inelastic to
e. Income Techniques. price hike. During the major price hike, 19 of the
f. Food quality and quantity respondents out of 36 (52%) try to maintain
g. Accommodation quality and space same quantity and quality of food by searching
quantity other income or spending less in other sector
h. Kids’ education (table 3). This is because food is our essential
Our study shows that 36 of the 98 part of our life. Moreover our target household
respondents have to react at major price hike to normally stays in saturation point in case of food
maintain their existing life style by utilizing their that is why there is no enough space left to
idle human resources or physical resources curtail in quantity or quality of food.
(50%) to earn more money to cover the The response rate of households changes
expenditure, 27.8% shift their job to more with the higher price hikes. From only one
incoming job and 22.2% search to do overtime household to 36 of total 98 are responded with
to manage their expenditure. The response rate is the less than 20% of price hike to above 80%
gradually reduced to only one person out of 98 at levels (table 3). The behavior of households at
the level of 20% price hike due to great saving different levels is found different at various
per unit of time. So saving secures individuals at levels. The variation at quantity and quality
the hard time. During the major hike extra levels and search other income sources are the
income sourcing decision varied across the job options at different levels. But in all types of
variation. Household (more than 50%) may behavior it is found that all the households have
occupy their family members for extra income, given sufficient priorities to the food items at the
sometime, by withdrawing them from college crisis time.
(table 2). They may go for sublet of their The Chi-Square test verifies that the behavior
existing accommodation. and rate of responses is significantly differ at
Middle Class people can accommodate the different level of households in respect of
smaller price hike. During the major price hike different levels of price hikes of food items as p
they either go for overtime or switch to better value in χ2<0.05 (0.000).
job. It is found that up to 40% of price raise,
282
Manag. Stud. Econ. Syst., 2 (4), 279-286, Spring 2016
Table 1: Profile of the respondents
Item Description Number Percent Item Description Number Percent
No 9 9.2 Business 24 24.5
Household
Yes 89 90.8 SkilledProfessional 35 35.7
Head Occupation
Total 98 100.0 Job Holders 39 39.8
below 30 Y 18 18.4 Total 98 100.0
30-45years 57 58.2 MaritalStatus Unmarried 14 14.3
Age
Above 45 Y 23 23.5 Married 84 85.7
Total 98 100.0 Total 98 100.0
Source: SPSS outputs from the data in Field Survey held on Feb. 2015 to June 2015
Table 2: Alternatives of raising income in the face of price hikes of commodities
Price Hike of Essentials Alternatives in Price Hike Total
Increase by overtime Shift to other job Utilize idle Resources
1 0 0 1
Up to 20%
100.0% 0.0% 0.0% 100.0%
4 0 0 4
20-40%
100.0% 0.0% 0.0% 100.0%
11 12 10 33
40%-60%
33.3% 36.4% 30.3% 100.0%
9 6 9 24
60%-80%
37.5% 25.0% 37.5% 100.0%
8 10 18 36
Above 80%
22.2% 27.8% 50.0% 100.0%
33 28 37 98
Total
33.7% 28.6% 37.8% 100.0%
Source: SPSS outputs from the data in Field Survey held on Feb. 2015 to June 2015
Table 3: Alternatives of food consume habits in the face of price hikes in food items
Alternatives
Price Hike in
maintain quantity,
Food Items Lower quality in Smaller Quantity Lower quality in
quality and search Total
Same quantity in same quality smaller quantity
other income
0 1 0 0 1
Up to 20%
0.0% 100.0% 0.0% 0.0% 100.0%
0 4 0 0 4
20-40%
0.0% 100.0% 0.0% 0.0% 100.0%
1 29 0 3 33
40%-60%
3.0% 87.9% 0.0% 9.1% 100.0%
2 12 4 6 24
60%-80%
8.3% 50.0% 16.7% 25.0% 100.0%
0 13 4 19 36
Above 80%
0.0% 36.1% 11.1% 52.8% 100.0%
3 59 8 28 98
Total
3.1% 60.2% 8.2% 28.6% 100.0%
Source: SPSS outputs from the data in Field Survey held on Feb. 2015 to June 2015
283
Muhammad Abdul Latif; Mohammed Hanif
Accommodation: face of price hikes in different levels and the
Most of people (Avg. 95%) maintain their data is about the policy making of the
quality/size of their house as they are not households where the matured persons are
shifting their house in minor/ medium hike. involved. Most of respondents are head of the
Possible factors will be the shifting cost, utilities, households and of different professions to justify
transportation, furniture accommodation, life the research (table 1). As the research are about
style etc. Again apartment owner tendency to the activities of middle income people in the
increase rent every time with the change of face of different levels of price hikes and the
boarder, which also have a significant effect that respondents have a small savings after their
made them to stay at a same place. But in major necessary expenditure, so it is found that 95% of
hike majority (90%) of the people have to the respondents reacts in above 40% of price
compromise and shift into smaller place (table hikes in different essentials items (table 2, table
4). 3, table 4 and table 5). That is they try to
The major hike in home rent compels the maintain their standard in below 40% of price
boarders to shift their home to new available hikes. Naturally, the highest portion of people
home with comparative low rent. Generally (36%) reacts in highest level of price hike.
people have to select the smaller home with Middle income people have tendency to
comparatively low quality because of hikes in maintain their present position in every situation.
rent. The reaction in major price hike is found So they are found to utilize their idle resources
from more respondents and smaller hikes results to increase income to compensate the price hike
in small numbers of respondents’ reactions by of highest level (table 2). This tendency is found
different ways. But the proportion of reacting in major price hike in food item also. They
respondents out of total number of reacting search for more income to compensate the price
respondents in each category regarding price hike to maintain the present level of quantity and
hikes indicates the reactions from almost similar quality of food items (table 3). In
proportion, so the Chi-Square test (χ) indicates accommodation, they are not ready to sacrifice
no significant differences in different category of the quality of living place but try to manage by
respondents (p=0.310>0.05). smaller space (table 4). The highest emphasize is
given to the educational activities by the target
Education: population. They are found to not sacrifice the
Good school means a lot to parents. The quality of education by changing the school but
participants think that it plays a vital role for they try to manage the expenditure by
their children to develop and able to adapt in manipulating in the additional educational
society in future. As obvious majority of them service through coaching (table 5). The level of
try to hold same school, either the hike may be price hike is found to create significant
major / minor/ medium. All they do is, make difference in the activities of respondents in
some adjustment with coaching and no coaching searching the income source that was tested by
option. In the major price hike in educational Chi-square tests. In food items price spiraling,
cost, the middle income people tends to get their the reaction of respondents in also found as
kids’ education from the same school but there significant. The similar finding was found in the
may be adjustment in the coaching. The Chi- case of price hikes in education but in
Square test (χ2) verifies that there is significant accommodation, people tend to stay in the same
relationship in price rise in educational place by sacrificing other things, so an
expenditure and behavioral change in insignificant difference was found in Chi-square
educational activities in middle income test. In summary, it can be inferred that the
households (p value=0.009). middle income people are stubborn to maintain
their standard of living by all means in the face
DISCUSSION of price spiraling of essential items. The reaction
The data were collected from the respondents was found in highest levels of price hikes but the
of 18 years age and above as this research is to reactions, there is dominance of maintaining the
search the alternatives in different aspects in the present position in every case.
284
Manag. Stud. Econ. Syst., 2 (4), 279-286, Spring 2016
Table 4: Alternatives of accommodation in the face of price hikes of house rents
Alternatives
Price hike in
Total
accommodation Lower quality Smaller Space Lower quality in maintain quantity, quality
in Same Space in same quality smaller Space and search other income
0 1 0 0 1
Up to 20%
0.0% 100.0% 0.0% 0.0% 100.0%
0 4 0 0 4
20-40%
0.0% 100.0% 0.0% 0.0% 100.0%
1 31 0 1 33
40%-60%
3.0% 93.9% 0.0% 3.0% 100.0%
2 18 3 1 24
60%-80%
8.3% 75.0% 12.5% 4.2% 100.0%
0 35 0 1 36
Above 80%
0.0% 97.2% 0.0% 2.8% 100.0%
3 89 3 3 98
Total
3.1% 90.8% 3.1% 3.1% 100.0%
Source: SPSS outputs from the data in Field Survey held on Feb. 2015 to June 2015.
Table 5: Alternatives of educational activities in the face of price hikes in education in different levels
Source: SPSS outputs from the data in Field Survey held on Feb. 2015 to June 2015
CONCLUSION
Inflation or increase in price level of minor price hikes. But the respondents are found
essential products of households is occurred due to search for different alternatives in medium to
to high fiscal deficits, poor monetary policy, higher level of price hikes in food items,
unsustainable public borrowing, volatile accommodation and educational expenditures.
exchange rates, demand push or supply push of The reactions of the respondents are
products or services. There are many positive significantly different in the earning, food
impact of inflation in the economy along with expenses and educational expenses. So the
negative impact on standard of living of poor entrepreneurs and the authorities have to take
and middle class citizens. The middle income necessary measures to minimize the impact of
class people are most sufferer in the inflation as price hikes to facilitates to help the middle
they are tends to maintain their social status and income people in maintaining their standards
standard of living with their minimum savings. It and life styles as that class is the energy
is found that reaction from most of the suppliers in the economy. The stagnation of
respondents in the excessive increase in the economy is inevitable if the middle class people
prices brings pathetic measures over the target are failed to afford their consumptions during
population that ultimately influences their time inflation period.
of price hike are not so visible in the time of
285
Muhammad Abdul Latif; Mohammed Hanif
Managerial Implication: Large consumer class is
essential to accelerate the economic activities.
Middle income people are the large consumer
class in the economy. Management should
consider the result of such research in pointing
out the alternatives of middle class citizens in
the face of different levels of price hikes to
innovate new products or services to maintain
the standard of living of that class consistently
with their income level. The authority or
management should also consider compensating
that class in their income level to maintain their
affordability to consume the products or
services. Otherwise the overall demand of the
products would fall and welcome a stagnation
period in the economy.
Limitation of the Study: The sampling size and
the area of research are not sufficient to portrait
the overall activities of middle class people in
the face of inflation. The people of low income
group are also a great contributor in the
economy. This research is failed to cover them.
Further Research: There are scope to do more
research by increasing the size of sample and
sampling frame to overall Bangladesh. The other
important items of livelihood may be considered
in further research. There are also scope to
search the alternative course of actions of lower
middle and poor income group in the economy
to provide some imperatives to the management
of enterprises and the policy makers.
REFERENCES
Barua, D. (2009). Price Spiraling and Economic
Stagnation- The Direct Role of Government in
Market Control. Bangladesh Journal of Political
Economy, 25 (1/2), pp. 163- 175.
Lokanathan, V. (1989). Principles of Economics, New
Delhi: S. Chand and Company Ltd.
Mehrara, M. and Moghadasfer, S. (2012). The Effect
of Inflation Uncertainty on Output Growth: Markov
Switch Approach, International Journal of
Management and Administrative Sciences, 1 (4),
pp. 23-31.
Murshed, N. (2007). Inflation and Price Fixing,
Forum, September 2007, pp. 14-17.
Rahman, N. (2008). A Price too High to Pay, Star
Weekend Magazine, May 9, pp. 7-15.
Siddiqui (1990). Social Formation in Dhaka City,
Dhaka: University Press Limited.
286
