The trend is reported across South Asia
Inflation: Bhutan experienced disinflation, a reduction in the rate of inflation by recording 3.10 percent inflation in August according to the National Statistics Bureau (NSB.
This means that the price of goods and services between August last year and August this year increased by 3.10 percent. However, the annual inflation rate is trending down since December, last year.
This doesn’t mean an absolute decrease in price but that the rate at which prices are increasing is slowing.
The 12-month inflation, ending December last year was 6.38 percent and the gradual decline in inflation reached 3.44 percent last July.
The decrease in inflation was contributed mostly by the decrease in global crude oil prices and improved food production.
If the disinflation continues and the inflation rate trails below zero percent, the country is said to be experiencing deflation or negative inflation rate.
Food price has risen by 2.29 percent and non-food prices by 3.64percent. The prices of domestic goods and services increased by 3.74 percent and the prices of imported goods increased by 2.55 percent.
But overall, inflation in both domestic and imported category reveals a declining trend.
Price of fruit experienced a negative inflation of 5.10 percent and beer reported a negative inflation of 0.33 percent.
The declining inflationary trend is witnessed across the region, according to the Wold Bank’s report “getting the prices right.”
The report stated that decelerating inflation has reached “historic lows” over the past year in South Asia and that several countries has loosened their monetary policies.
Although a decrease in prices is considered a good thing for the consumer as it gives them greater purchasing power, persistent fall in prices, however, can have severe negative effects on growth and economic stability.
That is why central banks across the world targets a moderate amount of inflation rate at 2 to 3 percent, as is the current case for Bhutan.
Deflation would also slow down the economy, by slackening the aggregate demand in the economy since consumers would delay their purchases expecting a further drop. This, a local economist said will lead to an overall decline in asset prices as producers are forced to liquidate inventories.
Consumers and investors, then begin holding on to liquid money reserves with more savings and less spending. It would also push banks to lower the interest rates.
Incidences from the global economic crisis have revealed that this in turn leads to production slow down and companies reduce their workforce resulting in more unemployment. The unemployed would then be forced to deplete their savings, which could result in them defaulting on debt obligations, affecting the financial institutions .