Prices: If decreasing fuel prices decelerated the inflation rate, the increase in price of vehicles slightly surged it last month.

In January this year, the Indian government withdrew the excise duty concession on Indian car manufacturers.  This, coupled by increased production cost, has resulted in increased cost of cars in India and because of the tax implication it became dearer in Bhutan.

The price of goods and services, as measured by monthly consumer price index (CPI) of  the National Statistical Bureau (NSB) increased by 6.32 percent last month compared with February last year.

If compared monthly, from January to February this year, prices increased by 0.23 percent.

The CPI report states that the price rise was mainly pushed by the prices of vehicles, which recorded the highest increase, by 37 percent between February 2014 and February 2015.  House rent has also increased by 14.79 percent in the non-food basket.

Within the food group, milk, cheese and eggs recorded an increase of 10 percent, followed by meat prices, which rose by 9.8 percent.

While inflation in the country has strong correlation with that of India, since Bhutan imports more than 80 percent of goods and services from India, an NSB official said inflation is sometimes seasonal and need not necessarily follow the trend in India.

For instance, prices of local produced goods and services increased by 7 percent, while imported goods increased by 5.86 percent over a one-year period (from February 2014 to February 2015).

This means that about 54 percent of the overall inflation is home grown, while the minimal increase in imported goods was also due to the decreasing fuel price by about 5 percent between January and February.

Domestic goods and services include electricity, house rents, and utilities, besides some produced edibles in the commodity basket.

Basket items, NSB officials said, were identified, based on a nationwide household survey, and revised from time to time because of probable changes in consumption pattern.

Since CPI is a measure that examines the weighted average of prices of a basket of consumer goods and services, they are weighted according to their importance or volume of consumption.

For instance, rice is a food commodity that every Bhutanese consumes, and the volume of consumption is huge.  A slight increase in the price of rice, be it local or imported, will impact the overall inflation.  So is the case for fuel price because of its importance to the economy.

As per the CPI, the purchasing power of the ngultrum has decreased by 5.95 percent in the past 12 months (from February 2014 to February 2015) due to price rise in the economy.  In other words, Nu 100 in February 2015 is worth only Nu 84 at December 2012 prices.

By Tshering Dorji