Inflation: The price of goods and services increased by 2.87 percent between July last year and July 2016, according to the consumer price index.

This was 0.69 percentage lower than the year-on-year inflation of June, which stood at 3.56 percent.

This, however, does not translate in price reduction of goods and services because it only indicates that the rate of inflation has slowed by a small margin albeit the price increase.

As per the consumer price index published by the National Statistical Bureau (NSB), the prices of food increased by 4.05 percent as of July in comparison with July last year (year-on-year). Similarly, the price in the non-food category has gone up by 2.10 percent.

The prices of domestic goods and services increased by 3.96 percent due to increase in local food prices by 6.09 percent and non-food prices by 2.72 percent. As for the imported goods and services, prices of imported food increased by 2.44 percent and prices of non-food by 1.47 percent, resulting in a total increase by 1.88 percent for imported goods. This means that increase in price of locally produced goods and services have contributed more to the overall inflation.

Inflation has a lot to do with elasticity of various goods and services because the NSB attach more weights to these commodities, a local economist said.

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.

The NSB bases its CPI on Market basket or a sample of goods and services which is representative of all goods and services purchased by the households. The present market basket has 151 items of 436 varieties, which are classified into 12 major groups.

Expenses of housing, electricity, communication, education and hotel and restaurant services are also being evaluated in the CPI along with other food and non-food commodities.

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. For current CPI, prices are collected from a sample of 557 outlets.

Tshering Dorji