The price of goods and services increased by almost five percent between June last year and this June, according to the consumer price index.
This was 0.72 percentage lower than the year-on-year inflation of May, which stood at 5.65 percent.
This, however, does not translate in absolute reduction in prices of goods and services because inflation entails the rate at which prices increase. A deflation would result in reduction of prices.
As per the consumer price index published by the National Statistics Bureau (NSB), the prices of food increased by 6.53 percent and non-food commodities by almost 4 percent.
The prices of domestic goods and services increased by 5.69 percent due to 6.97 percent price rise in food items and almost five percent increase in prices of non-food commodities.
As for the imported goods and services, prices of imported food increased by 6.18 percent and prices of non-food by 2.83 percent, resulting in a total increase by 4.24 percent. This means increase in price of locally produced goods and services have contributed more to the overall inflation.
Inflation has more to do with elasticity of various goods and services, an NSB official said, because of the weights attached to various goods and services.
Weights, according to the CPI reflect the relative importance or contribution to the total consumption expenditures of all households. It is determined using the spending patterns of households during some previous weight reference period.
A good or service is considered to be highly elastic, if a slight change in price leads to a substantial change in demand or supply. For instance, fuel is considered to be price inelastic good as there are no substitutes. Regardless of the price change, demand is not likely to fall and so would be the supply. Such commodities are given more weightage for the sake of determining inflation.
A drastic change in price of pulses in India would have little affect on Bhutan’s inflation but such changes in price of rice could as it is the staple diet.
The NSB attaches almost 52 percent of the total weights to the imported items and the rest for domestically produced goods and services. This is understandable given the amount of goods and services the country imports.
While the house rents are given more weights among the non-food group, the price has not changed much between June last year and June this year.
Among the food groups, bread and cereals, which includes rice too is given the highest weight. However, the monthly inflation for this commodity group has decreased from 5.5 percent to 4.69 percent between May and June.
NSB ‘s market basket has 151 items (436 varieties) compared to 80 items (363 varieties) in the previous CPI basket. These 436 varieties are further classified into 12 major groups.
The Bureau has identified sample outlets, which is the permanent establishments or retail shops from which monthly price of goods and services are collected or quoted. These include groceries, clothing and footwear, restaurants, hardware shops, vegetable vendors and service providers among others.
CPI is one of the major indicators that determine the effectiveness of an economic policy. It is used to formulate fiscal and monetary policies and monitor their effect on the overall economy. Business executives, labour leaders, and other private citizens use CPI as a guide to make economic decisions.