The paper studies the effect of a sharp rice price increase on welfare and poverty in Bangladesh. The study improves the methodology of estimating welfare loss, first by using household expenditure for household income and second, by accounting for the change in production and consumption pattern. We find a lower proportionate welfare loss for households in rice exporting divisions indicating that they suffer least from an increase in rice price. Our findings further support the hypothesis of a quadratic relationship between welfare loss and household income. Higher rice price may either increase or decrease the poverty head-count ratio depending on the poverty line used. However, if we consider per capita income gap as a measure of poverty, we find that poverty increases with a higher rice price.