…  projected to remain closer to 4 percent this year

Thukten Zangpo   

Bhutan’s inflation which reached a 10-month high at 4.75 percent in August this year is expected to slightly decrease this year, as projected by international banks. The inflation rate was 5.99 percent in August last year.

In a recent report, the Asian Development Bank (ADB) projected Bhutan’s inflation to fall to 4.1 percent, while the World Bank has projected it to reach 4.6 percent for this year.

Given that over 80 percent of Bhutan’s imports come from India, the inflation in Bhutan closely tracks India’s inflation. This means that any fluctuations in Indian inflation have a direct impact on the consumption basket for Bhutan.

Amid the rising prices, especially across vegetables due to uneven rainfall distribution and disruption, India’s year-on-year inflation recorded a high of 7.44 percent and 6.83 percent in July and August this year.

However, it eased to 5.02 percent as of September because of a sharp decline in select food items, including vegetable prices and edible oils.

The Central Bank of India forecast inflation falling to 5.7 percent in December this year, cooling further to 5.4 percent in fiscal year 2023-24 with favorable seasonal factors.

Despite erratic rainfalls, Bhutan’s inflation was recorded at 4 percent and 4.75 percent in July and August this year, according to the National Statistics Bureau (NSB). The monsoon season’s rains heavily influence Bhutan’s farming, which is primarily small-scale production.

In August, the NSB figure shows that the prices for both food and non-food saw an increase of 5.82 percent and 3.95 percent respectively.

Except for transport which decreased by 1.18 percent, the prices of food and non-alcoholic beverages increased by 5.84 percent and prices for alcoholic beverages and betel nuts increased by 5.58 percent.

Comparing the month-on-month consumer price index, the inflation in August increased by 0.36 percent from July, with a decrease in food prices by 0.08 percent and an increase in non-food prices by 0.73 percent. The price of transport increased by 3.23 percent and alcoholic beverages decreased by 0.22 percent.

The price of goods and services or inflation in Bhutan was recorded at 5.64 percent in 2022, while it was 7.35 percent in 2021. Food prices contributed to about 34 percent of the overall inflation rate in 2022 and non-food to 66 percent. In 2021, food prices were the main driver of the inflation rate contributing to almost 60 percent of the total increase.

However, there is a grim look for food inflation on account of uneven monsoon and oil prices because of the recent Israel-Palestine crisis on October 7.

According to the ADB, Bhutan’s headline inflation in the first five months of this year averaged 3.7 percent year-on-year. This was much lower than expected seeing a mid-year drop in fuel prices and low food inflation at only 1.8 percent.

“Headline inflation in the second half of the year is projected to rise to 4.5 percent as food price pressure results from the impact of erratic monsoon on domestic agriculture, export restrictions imposed by neighbouring countries on food commodities, and expected increases in global prices,” ADB stated.

As per the media reports, the Israel-Palestine conflict could spur oil prices beyond India’s comfort zone and even if the government holds retail fuel prices ahead of critical elections, wholesale prices may spike and a higher import bill could pressure the rupee.

The report added that Brent crude oil prices rose over 3 percent on September 9, crossing over USD 87 a barrel even as equity markets around the world.