Inflation anticipated between 5 to 7 percent in the medium-term

Thukten Zangpo

Complaining about your Nu 1,000 not buying you much? Here is the answer. Consumers are paying 5.57 percent more for the same goods and services they paid in March last year.

This is attributed to increase in fuel prices (petrol and diesel), as expected, by about 40 percent from March last year, according to the latest consumer price index (CPI) from the National Statistical Bureau (NSB).

Non-food prices saw 6.92 percent increase in March this year contributing to 64 percent of the overall increase compared to the same month last year.

Within non-food, transport recorded the highest increase with 12.6 percent because of increase in fuel prices. Transportation accounted for 32 percent of the overall increase in inflation.

Food prices went up by 4.01 percent contributing to 36 percent of the overall inflation rate.

However, the inflation is below the Royal Monetary Authority’s (RMA) upper threshold of 6 percent since February this year.

Price of crude oil is above USD 100 per barrel on March 17 this year because of the ongoing war between Russia and Ukraine. The prices rose to Nu 100.59 for a litre of diesel and Nu 95.21 a litre respectively.

It was Nu 66.41 and Nu 68.55 respectively in Thimphu on the same day last year.

The spillover effect is now being felt by all sectors even as they see a window of recovery from the Covid-19 induced slowdown.

As producers grapple with high input costs, firms have started passing on higher prices to consumers.

Transportation, even with the vehicle switching system removed, has become expensive.

Head of finance and distribution, 8 Eleven, Lokendra Ghalley said practically the removal of driver switching system will save around Nu 2,000 to Nu 3,000 in freight charges and price of goods should at least come down slightly but with increase in fuel price, it remains the same.

A one-way trip of goods in a Jumbo truck from Phuentsholing to Thimphu cost Nu 22,000 to Nu 23,000 now.

“The cost of goods has increased since most of the goods are coming with new prices,” Lokendra Ghalley said.

RMA’s study on the impact of fuel prices on inflation in 2021 found that an increase in fuel prices by 10 percent would increase monthly inflation by 3.6 percent within a month and further push inflation by 1.3 percent after three months.

“If fuel prices increase by 10 percent, other factors remain constant, the total increase in inflation will be 4.9 percent after three months from now,” it added.

Prices for almost all essential items have seen a surge since the pandemic, thereby forcing the common man to revisit his or her household budget.

Tightening the kera (belt) has been a forced solution. According to the National Accounts Statistics, 2021, consumer spending measured in private household final consumption expenditure for food and non-alcoholic beverages fell by about 12.32 percent in 2020 among others compared to the previous year.

Higher food prices would also mean that the consumers’ demand for consumer durable goods and other non-essential commodities will be negatively impacted since a higher proportion of households’ disposable income is spent on food and essential commodities.

With rising global commodity prices and continued supply chain disruptions, inflation is expected to remain elevated.

But with a gradual easing of containment measures and calibrated approach of central banks in tightening the stance of monetary policy in the region, inflation is expected to moderate.

As inflationary pressure in Bhutan is determined largely by exogenous factors, anticipating the inflationary pressure within the range of 5 to 7 percent over the medium term (fiscal year 2022-23 and 2023-2024).

The purchasing power of Ngultrum as measured by CPI was Nu 61 as of March 2022 compared to December 2012. This means that Nu 100 today is worth only Nu 61 in March 2012.