Fall in food prices helps inflation to plummet in August

The price of consumer goods and services in August this year was 5.60% costlier than the same month last year, however, the year-on-year rate has dropped compared to the previous month which recorded 6.61%.

The Consumer Price Index (CPI)-based inflation rate reported that food prices contributed to 44% of the overall inflation, recording a 5.20% increase while non-food went up by 5.95% contributing to 56% of the overall inflation.

However, both food and non-food recorded a lower rate of increase compared to the previous month of July.

The month-on-month CPI in August decreased by 0.72% from July with both food and non-food decreasing by 0.60% and 0.83% respectively. The drop in food prices was due to a decrease in the price of vegetables and fruits while a drop in non-food was associated with the drop in the price of fuel (petrol and diesel) by around 14%.

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

The higher rate in 2021 was due to an increase in non-food by 5.62% compared to a 1.24% increase in 2020. Food prices contributed to about 60% of the overall inflation rate in 2021 and non-food contributed to 40% of the total increase.

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

Among the 12 major divisions, food & alcoholic beverages contributed to more than 50% of the total increase in 2021, followed by transport with about 15% and clothing & footwear with about 11% contribution to the total increase.

In addition, alcoholic beverages and betel nuts recorded the highest increase at 16.66% while education fees recorded the lowest increase at 0.66% in 2021. All other divisions recorded an increase except for communication which dropped by 9.90%.

Meanwhile, the CPI is a measure of average price changes in the basket of goods and services purchased by households over time. It shows how much, on average, prices of goods and services have increased or decreased from a particular reference period, commonly known as the index reference.

According to the NSBโ€™s report, the purchasing power of Ngultrum as measured by CPI is Nu 60 as of August 2022 compared to December 2012. This means Nu 100 in August 2022 is worth only Nu 60 at December 2012 prices.

The Purchasing Power of Ngultrum as measured by CPI has dropped by 5.31% in the last one year (from August 2021 to August 2022) due to a price increase in the economy.

Kinley Yonten from Thimphu