Which in turn was the main driving force that lead to higher rate of inflation in 2020

MB Subba 

Commodity prices rose significantly last year as the measures taken to contain Covid-19 had a major impact on food supplies in the country, according to statistics released by the National Statistics Bureau (NSB).

The average annual consumer price saw an increase of 5.63 percent in 2020 compared to 2.73 percent increase in 2019.

The higher rate of inflation last year has been attributed to food prices, which increased by 11.09 percent as compared to 3.44 percent in the previous year.  This means if a family spent Nu 5,000 a month on food items in 2019, the expenditure for the same increased by about Nu 550 last year.

The year-on-year price rise had remained under three percent till February.  But the prices rose sharply following the detection of the country’s first Covid-19 case in March and reached 8.02 percent in September and fell to 7.72 percent in December.

Vegetables, meat, dairy products and betel nut continue to be the main contributor to the overall increase following import restrictions in view of the Covid-19 pandemic.

For instance, the price of local pork was about Nu 750 per kg in the last quarter of the year, which is about 100 percent increase from the previous year.  A kilogram of green chili costs about Nu 600 due to limited supplies.

A restaurant operator in Thimphu, Tshering, said that he was forced to increase prices of food items due to the drastic increase in the prices of meat and vegetables.

He said that he increased the prices by about 30 percent. “The price increase had to be borne by both the seller and the consumer,” he said.

A Thimphu-based employee, Tashi Tenzin, said that it was the bigger households that felt the pinch. “Smaller households wouldn’t feel the impact as much as larger households,” he said.

The NSB report, however, highlights that the annual average price of non-food items was not affected significantly.  Non-food prices recorded an increase of 1.24 percent in 2020 compared to 2.24 percent in 2019.

The lower rate for non-food group in 2020 is associated with a minimal increase in transport (by 0.52 percent) as compared to 2.72 percent in 2019, and also due to a decrease in communication prices (by 5.75 percent).

As a result of the price increase in the economy, the purchasing power of ngultrum (PPN) decreased by 7.16 percent in the past 12 months (from December 2019 to November 2020), according to the statistics.

The PPN as measured by consumer price index (CPI) is Nu 66 as of December 2020 compared to December 2012.  This means that Nu 100 in December 2020 is worth Nu 66 at December 2012 prices.

The CPI is a measure of average price changes in the basket of goods and services purchased by households over time.  It shows how much, on average, prices of goods and services have increased or decreased from a particular reference period, commonly known as the index reference scope and coverage.

The CPI covers the goods and services consumed by the households and a sample of goods and services are selected using the household expenditure data to measure the inflation experienced by the households.

Prices of the sampled goods and services are collected from urban areas in 20 dzongkhags on monthly, quarterly and annual frequency.