Thukten Zangpo

Despite the fuel price experiencing an almost 50 percent decrease in the past year, consumers said that the prices of commodities in the market have remained unchanged or even increased.

With the salary revision for the public servants and the armed forces, and expected revision for Druk Holding and Investments and other corporate employees, prices are expected to increase.

According to the figures maintained with State Trading Corporation of Bhutan, the price of a litre of petrol has decreased to Nu 65.74 as of July this year from Nu 91.26 in the same month last year. At the same time, a litre of diesel saw its price decrease to Nu 67.54 from Nu 109.11 during the same period.

It is also evident from the list of essential commodities with the Competition and Consumer Affairs Authority under the Ministry of Industry, Commerce and Employment, the prices of essential commodities have increased between 2 percent to 40 percent.

A 20-kilogram basmati rice (Zheychum Chogjur) costing Nu 1,263 in July last year is currently costing Nu 1,365 as of July this year. The cost of 20-kilogram basmati rice (nawab) increased from Nu 1,217 to Nu 1,267 during the same period. 

Similarly, a kilogram of flour (atta and maida) saw over 30 percent increase in price compared to July this year and last year. Toned milk prices increased between 8 percent to 22 percent. 

At the same time, processed cheese and butter also saw an increase in price of 7 percent and 13 percent respectively. However, refined soyabean oil saw a decline in price by about 9 percent during the same period.

A study conducted by the Royal Monetary Authority on the direct impact of fuel price increase showed that 10 percent increase in fuel prices translates to 0.4 percent increase in consumer price index (CPI) inflation given the CPI baskets constitute 4.4 percent of the total weight of CPI (LPG, kerosene, petrol, diesel, and engine oil).

However, the RMA’s indirect impact study 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.

Further, if fuel prices increase by 10 percent with other factors remaining constant, the total increase in inflation will be 4.9 percent after three months, indicating that fuel prices have a huge impact on inflation. 

A decrease in fuel prices by 10 percent would decrease monthly inflation by 3.6 percent within a month, and further pull inflation by 1.3 percent after three months, and 4.9 percent within 4.9 months with other factors remaining constant. 

However, it is also important to note that inflation is mainly influenced by two factors—the demand side (demand pull) and supply side (cost-push). 

On the demand front, changes in policies related to monetary, fiscal, wage, and seasonal factors are the main drivers of inflation. 

On the other hand, changes in input cost, variations in weather conditions, and revisions in administered prices influence domestic inflation through the supply side. Domestically, change in policy measures, internal supply chain disruptions, and changes in the cost of production of consumer goods are also drivers of inflation. 

Changes in the global commodities prices, including fuel prices through change in production capacity and market demand, added by the change in the exchange rate of domestic currency against foreign currencies also influence domestic inflation. 

According to the National Statistics Bureau, the country’s inflation measured in CPI increased by 3.4 percent in May this year compared to the same month last year. This means the price of goods have become costlier by 3.4 percent as of May this year. The prices for both food and non-food increased by 3.22 percent and 3.57 percent respectively. 

The Bhutan Construction and Transport Authority revises the passenger fare for both the buses and taxis twice in a year–February and August. However, the authority does not look into revision for freight charges.

A wholesaler based in Thimphu said that whether the fuel prices go down or up, it does not make much difference because transporters stick to the same transportation cost since both parties have drawn a contract.

While an observer said that freight charges should be left to the open market where the market dynamics of demand and supply play a role. 

Meanwhile, the elasticity of various goods and services also influences inflation. A good or service is considered to be highly elastic if a slight change in price changes the demand and supply. 

For instance, inelastic goods like fuel, where there are no other substitutes, would influence inflation because demand is not likely to fall, irrespective of an increase or decrease in price.

The Bhutan Chamber of Commerce and Industry study found that a Jumbo truck’s transportation cost from Phuentsholing to Thimphu has increased by 35 percent from Nu 7,975 in 2019 compared to Nu 10,730 in 2021 with the round way fuel of 145 litres.