Thukten Zangpo 

The cost of consumer goods and services dropped in August this year after seeing a six-month upward trend as both food and non-food prices saw a decrease.

The inflation measured in the consumer price index dipped to 5.6 percent in August from 6.61 percent in the previous month. The inflation rate was lower than the Royal Monetary Authority’s upper threshold of 6 percent.

Inflation is the pace at which price of goods and services are rising over a period of given time.

Both food and non-food items recorded a lower rate of increase in August compared to the previous month. The price of food and non-food items saw a decrease of 0.6 percent and 0.83 percent respectively.

The drop in food prices was because of the decrease in price of vegetables and fruits. It is expected that the vegetable prices will remain lower in the coming month as the vegetable harvest season falls between late September and early October.

The drop in non-food prices was because of the drop in the price of fuel – petrol and diesel by around 14 percent.  The price of petrol and diesel fell by about Nu 9 and Nu 7 respectively from July to August this year.

However, August’s inflation at 5.6 percent means the consumers had to pay 5.6 percent more for the same quantity of goods from the same month a year earlier, squeezing the household budgets.

Food inflation, which accounts for 44 percent of the overall inflation, recorded a 5.2 percent increase.  Non-food inflation, which accounts for 56 percent of the overall inflation, went up by 5.95 percent.

As 80 percent of Bhutan’s import is associated with India, any inflationary pressure in India is expected to transmit to domestic inflation.

For the last two years, inflation was mainly driven by increased food prices, which was on a higher end compared to non-food prices.

From July last year, an increase in non-food prices added to the inflationary pressure with the sudden hike in fuel prices due to limited supply and geopolitical tensions in the region caused a drastic increase in the overall commodity prices.

Inflation peaked at 8.2 percent by the end of the fiscal year 2021-22 mainly driven by an increase in non-food prices.

The finance ministry estimated the annual inflation at 7 percent in the current fiscal year 2022-23 and 6.7 percent in the fiscal year 2023-24.