…driven by rising non-food prices

Thukten Zangpo 

The price of goods and services rose 5.95 percent in May this year compared to the same month in the previous year, National Statistics Bureau reported in its latest consumer price index (CPI) released yesterday.

The increase in the price of goods and services, the CPI states, was because of the increase in food prices by 3.52 percent and non-food prices by 8.05 percent.

Non-food, contributing 71 percent of the total inflation, was the main driver of inflation, unlike in the past two years which were driven by an increase in food prices. Food accounted for 29 percent of inflation.

“Transport sector continues to be the main driver with 15.46 percent increase followed by clothing at 7.80 percent increase,” the CPI stated.

A litre of diesel priced at Nu 69.14 in May last year rose to Nu 111.92. Similarly, a litre of petrol rose to Nu 97.03 from Nu 71.33.

Comparing the inflation of May this year to last month’s April, it decreased by 0.5 percent due to a drop in prices of food by 1.57 percent.

“Within food, prices decreased for vegetables by 1.98 percent mainly due to decrease in the price of chilli, dairy products by 4.69 percent due to drop in egg price; and fruits by 3.37 percent,” the report stated.

On the other hand, non-food prices increased by 0.42 percent due to an increase in prices of petrol, diesel, liquified petroleum gas (LPG) and kerosene.

However, the prices of goods and services in 2021 were dictated by a rise in food prices by about 60 percent. Non-food contributed to 40 percent of the total increase.

In 2020, food prices were the main driver of the inflation rate contributing to almost 90 percent of the total increase.

The prices of household goods and services increased by 7.35 percent from 2020 to 2021. This was an increase of 1.72 percentage points compared to a 5.63 percent increase in 2020.

Given the more weight on the must-needed commodities like fuel, LPG and rice, a slight fluctuation in price could influence the inflation rate.

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 purchasing power of Ngultrum as measured by CPI was Nu 60 as of May 2022 compared to December 2012.  This means Nu 100 was worth only Nu 60 at December 2012 prices.