…it’s below the central bank’s projection of 5.5 percent in this fiscal year

Thukten Zangpo

Going by the trends of the country’s domestic inflation rate, which measures the price of consumer goods and services in the country, it is cooling down.

As of January this year, the year-on-year consumer price index was recorded at 4.33 percent compared to the same month last year. Recording a drop to 30 months low, the rate is lower than the Royal Monetary Authority’s (RMA) upper threshold of 6 percent.

The National Statistics Bureau’s figure shows that both the prices of food and non-food inflation rate dropped to 1.49 percent and 6.81 percent respectively in January compared to the same month last year.

Non-food items, particularly transport, constituting 43 percent of the overall inflation was the major contributor and saw an increase of 12.36 percent in January. In January last year, the transport sector contributed to 21 percent of the inflation.

According to the RMA report, the non-food inflation was mainly because of the volatility of global crude oil prices, which rose sharply during the period as a result of the limited supply chain and geopolitical tension in the region.

Clothing and footwear, which constitute 16 percent of the overall inflation, saw an increase of 7.39 percent.

In the food group, food and non-alcoholic beverages, inflation was moderate. Contributing to 14 percent of the overall inflation, it recorded an increase of 1.28 percent because of supply-side measures implemented by the government.

Food inflation averaged 4.5 percent in 2022, compared to 9.1 percent in 2021, mainly because of easing Covid-19 restrictions and the gradual normalisation of pandemic-related supply and logistic disruptions. The movements in food inflation are because of changes in the price of vegetables, bread and cereals, oils, and fats.

Bhutan’s domestic inflation closely linked with inflation in India because 80 percent of the country’s imports are from India. Any fluctuation in Indian inflation has a direct impact on the Bhutanese consumption baskets.

As a result, the inflation-targeting monetary policy at 4 percent below or above the 2 percent range of the Reserve Bank of India will, to some degree, cushion and ensure price stability in Bhutan.

With a higher proportion of expenditure spent on the consumption of foods, the RMA report stated that the inflation in Bhutan is expected at 5.5 percent in the fiscal year 2022-23 and is anticipated to remain almost the same at 5.3 percent in the medium term on account of more energy and food price shocks.

India’s inflation is projected at 6.7 percent in the fiscal year 2022-23 from the spillover effect of the geo-political shocks.

The International Monetary Fund (IMF) in its World Economic Outlook Update released on January 30 this year confirmed a more optimistic view of inflation in the future.

According to the IMF, global inflation is expected to ease from 8.8 percent in 2022 to 6.6 percent in 2023, as re-openings, lower commodity prices, and restitution of supply chains boost demand. However, it may still remain elevated relative to targets at 4.3 percent in 2024.