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.