Ngultrum’s purchasing power decreases

Currency: The purchasing power of the Ngultrum (PPN), as measured by the consumer price index has decreased by almost three percent in the past 12 months (March 2015 to March 2016).

As of March 2016, the PPN was recorded at Nu 81. This means that Nu 100 in March 2016 would fetch goods and services worth Nu 81 in December 2012. This is due to prices rising in the economy.

Purchasing power is the value of a currency expressed in terms of the amount of goods or services that one unit of money can buy. When there is a price rise in the economy, people’s ability to pay for goods decreases. When the general price level of goods and services goes up, the purchasing power of money goes down.

A local economist said purchasing power affects every aspect of the economy. He said that when a currency’s purchasing power decreases, cost of living increases, interest rates are affected and credit ratings fall. “This is why consumer price index (CPI) is an important tool to monitor purchasing power,” he said.

Purchasing power has a significant effect on investment returns and decisions. For example, if you invest Nu 100 in a company’s bond or save it in a bank for a year that yields five percent interest, then on maturity your return will be Nu 105. However, if your purchasing power decreases two percent during the year, your real return is actually three percent.

CPI, however keeps track of changes in the price level of a basket of consumer goods and services purchased by households.

As per the National Statistical Bureau, between March 2015 and March 2016, price of goods and services has increased by 2.95 percent, 0.04 percentage point lesser than the previous month.

Prices of food went up by 2.78 percent and non-food by 3.06 percent.

The prices of domestic goods and services has increased by 4.24 percent while the prices of imported goods has increased by 1.76 percent.

The country’s CPI is derived from a market basket of 151 items of 436 varieties, which is representative of all goods and services purchased by the households.

From the producers’ perspective, as measured by Producer Price Index (PPI), price of goods and services in the fourth quarter of last year increased by 0.54 percent as compared with fourth quarter of 2014.

PPI or the ex-factory price, measures price changes from the producer’s perspective unlike the Consumer Price Index (CPI) which measures the price change from the purchaser’s perspective.

Bhutan’s PPI covers logging, mining and quarrying, manufacturing, utilities (electricity and water), transport and communications sectors. It covers domestically produced goods and services.

Tshering Dorji

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