Inflation increases in the last fiscal year

Bhutan has seen a significant increase in inflation during the fiscal year 2016-17 following the price movement in India and the world market.

According to the latest Royal Monetary Authority Report, the overall Consumer Price Index (CPI) inflation increased to 5.45% in the second quarter (Q2) of 2017 from 3.31% during the same quarter the year before.

“Higher inflation was an outcome of both an increase in domestic demand and temporary issues in the supply chain which led to higher food inflation,” states the report.

The rise in inflation was recorded particularly in the process of food items that contributed to the increase in CPI inflation. The food items that attributed to the increased inflation include vegetables, fish, fruits and meat.

Apart from food items, non-food items such as housing, water, electricity, gas, and other fuels, clothing and footwear and education also contributed to the rise.

The report also shows that the domestic inflationary pressure outweighed imported inflation in the last 12 months. “The contributions of domestic inflation increased rapidly over the period moving the overall CPI up compared to imported items,” states the report.

Of the total market basket of 151 items (36 varieties), the domestic goods and services comprise 48.01% while the imported items comprises 51.99%. This means that 48.01% of the CPI inflation is controlled by domestic policies while 51.99% is controlled by the Reserve Bank of India (RBI) inflation targets and the policies of the Government of India.

Similarly, the Producer Price Index (PPI) inflation also increased by 5.29% in the second quarter (Q2) of 2017 compared to negative three percent of the previous year.

The year on year percent change in PPI by industry is attributed to the significant increase in transport and manufacturing sector. The only sectors that remained unchanged are the information and communication, and process of water supply, sewerage, waste management and remediation activities.

According to the report, the Purchasing Power of Ngultrum (PPN) was recorded at Ngultrum 77 as of June 2017. This means that Ngultrum 100 in June 2017 was worth only Ngultrum 77 at December 2012 prices.

The value of Ngultrum has depreciated by 23% in the past 12 months due to price rise in the economy.

Lucky Wangmo from Thimphu