Inflation is painfully high, but it should ease soon

The Consumer Inflation figure for July this year is 6.61%. The report is disquieting. Gasoline prices are seemingly breaking new record highs on almost a monthly basis, food costs are soaring, and housing is becoming increasingly unaffordable.

The persistence of high inflation in Bhutan has been a surprise, certainly to me. Indeed, the quickly rising prices are due mostly to badly scrambled global supplies resulting from the ongoing pandemic and war in Ukraine, and much will depend on how these two shocks play out.

Yet while predicting the course of events from here is intrepid, there are reasons to be optimistic. I’m confident that inflation will be meaningfully lower by this time next year and back to something we will feel comfortable with not too long thereafter.

To be sure, the pandemic continues to weigh on the global economy. It is tough to resolve supply chain bottlenecks when the biggest link has been all but broken.

And over two and a half years, still consequential hundreds of Bhutanese said that they were unable to work due to their employer closing down or losing business because of the pandemic. Meanwhile, businesses continue to struggle with labor shortages and must jack up pay to find and keep workers, adding to their costs, which they pass along at higher prices to their customers.

Russia’s invasion of Ukraine has further disrupted global supplies of oil, agricultural products, and other commodities, causing prices to spike. Gasoline and fuel price skyrocketed a big contributor to food prices — as much of what we pay for in the grocery store is the cost of getting the product from farm to store shelf — have risen even more.

Nonetheless, the pandemic appears to be winding down. There surely will be more waves of the virus, but since the pandemic hit, each wave has been less disruptive to the economy than the one that preceded it. The virus is becoming less virulent, our vaccines and therapies more effective, and our economy’s ability to manage the virus is improving.

It is also encouraging that, for the most part, high inflation is not about outsized demand. Spending on goods— home improvement and consumer electronics, for example — is up strongly since the pandemic hit and we sheltered in place.

But spending on services — think travel and elective surgery — has been diminished. However, the net of this is that consumers are spending about as much today as they would have if not for the pandemic.

Uncomfortably low inflation would still be the problem, as it had been in the decade leading up to the pandemic. But legislation isn’t necessary for my optimistic inflation outlook to come to pass. Now, all we need is a bit of good fortune and for the pandemic and Russia’s invasion of Ukraine to take a turn for the better.

The writer is Ugyen Choden, Freelance writer