Inflation-the scissor cutting through consumers’ pockets

As transportation costs soared, food prices increased by 5.20%, accounting for 44% of overall inflation

The centenary farmers market (CFM) in Thimphu was crowded with farmers and loaded bolero trucks. Despite the scorching sun, Ap Dorji, 42, was busy unloading potatoes and chilies from his bolero trucks. His wife is annoyed with the customers who are bargaining for the price of a sack of potatoes and chilies.

Customers rushed to Ap Dorji’s bolero trucks for the fresh red chilies. A sack of chilies costs Nu 1,800 but customers bargain for Nu 1,500. However, Ap Dorji refuses, saying it is lost for him. “Because we have to pay the transportation cost.”

“A sack of potatoes cost Nu 1,800 today but when we bargain, we get around Nu 100-150 discount,” one of the consumers said, adding that earlier they used to purchase saag for Nu 10, but now purchasing it for Nu 30.

An office goer woman said that vegetable prices have gone up dramatically. “Local vegetable prices had gone up unimaginably,” she said, adding that now Nu 1,000 is not enough to get a basket full of vegetables.

A farmer, who hired a bolero truck to bring his potatoes and chilies, said that transportation costs are unbearable. “We have to pay almost half or more for the transportation than what we are earning from farm products.”

However, the current inflationary pressure is caused by increases in production costs, such as wages, raw materials, energy, and transportation.

According to the local economist, inflation measures the rate of rising prices in the economy.  “Inflation in the supply chain can cause a ripple effect on prices, causing supply chain costs to rise, which causes more inflation and increased prices,” he said.

He shared that the prices increase when supply reduces and demand increases. Since 2021, supply chain disruptions at ports and warehouses caused by bottlenecks and labor shortages contributed to shipping delays.

Similarly, Ap Dorji also shared wages in the village had already increased. “We are paying Nu 500 per day for the worker, if not they are not willing to work or help during harvesting time.”

Another farmer said, “even though I have my Bolero trucks if I sell my potatoes and chilies at the earlier price it is lost for me because fuel price has gone up.

Further, the common man is likely to suffer more with the rising prices of commodities with the most recent blow being the rise in the price of the cooking gas cylinder (LPG). The cylinder got dearer by Nu 100 while the price of petrol and diesel have risen by Nu 40-50 each per liter.

“This is 2022’s first hike, the consumers got a breather for at least 3-4 months as in that period there was no change in the prices,” one of the consumers said.

“A Nu 100 given by parents brought us an exorbitant amount of joy in the form of a basket of toffees and cookies. Today, the same amount is incapable of buying the same basket,” he said adding it is due to the weakening purchasing power of money over time, which is called inflation. 

According to the local economist, inflation is a burning global issue in the current macroeconomic scenario, given the geopolitical crisis, supply-chain disruptions, trade sanctions, volatile exchange rates, and of course, the aftermath effects of the COVID-19 pandemic. 

“Inflation raises the price of goods and services over time, reducing the number of items you can buy indicating the gradual decline in the value of money,” he said, adding the heat of increasing inflation is not only felt by the economy at large but also by the individuals that resort to savings from their earnings.

He added that inflation, however, silently enters our pockets and eats up the hard-earned monetary wealth saved with transactional, speculative, and precautionary motives.

However, National Statistics Bureau (NSB) report states that the price for consumer goods and services in August was 5.60% this year. It is higher than in the same month last year.

Further, the report stated that food prices increased by 5.20%, accounting for 44% of total inflation, while non-food prices increased by 5.96%, accounting for 56% of overall inflation.

The consumer price index (CPI) reported a 0.72 % decrease from July to august this year, with food and non-food falling by 0.60% and 0.83%, respectively.

The economist Damber S kharka said that inflationary pressure directly affects the supply chain. Fuel prices are a huge factor in logistics as well, driving up transportation and freight costs that were already on the rise because of driver shortages.

From 2020 to 2021, household goods and services prices increased by 7.35%. This represents a 1.72 percentage point increase over the 5.63% increase in 2020.

“The increase in 2021 was due to an increase in non-food by 5.62% compared to a 1.24 % increase in 2020.” Similarly, food prices accounted for roughly 60% of total inflation in 2021, while non-food items accounted for 40%. In 2021, food prices were the main driver of inflation, accounting for nearly 90% of the total increase.

Among the 12 major divisions, food and alcoholic beverages contributed more than half of the total increase in 2021, followed by transportation (15%) and footwear and clothing with about 11% of the total increase.

Furthermore, alcoholic beverages and betel nuts recorded an extreme increase of 16.66% while education fees recorded the lowest increase with 0.66 % in 2021. NSB reported that all other divisions recorded an increase except for communication which dropped by 9.90 %.

Nidup Lhamo from Thimphu