Pay revision likely to affect price  of consumer goods

Pay revision likely to affect price of consumer goods

With the pay revision for public servants,there is speculation that price of consumer goods and house rents will spiral out of control.

It is likely that the pay hike would improve the disposable income (income available to be spent or saved as one wishes), while food and house rents would turn out to be the biggest household expenses.

The Tenancy Act of Bhutan 2015 would control the house rent as it mandates the house owners to raise the rents only after two years from the date of last rent increment or from the day of which a tenant occupies the house not exceeding 10% of the monthly rent.

A 37-year-old restaurant owner in Thimphu town, Daka Ram Gurung expects the price of the consumer goods to increase.

“With the third pay revision, the price of grocery goods increased by Nu 5 to Nu 10,” he added.

Another grocery shopkeeper, Kinzang Dendup, also said the price of goods increased by 5% during the last pay revision and he expects a similar thing to happen depending on the percentage of the pay hike.

However, he said the shopkeepers could not charge exorbitant price for the goods given the market competition.

“The prices of meats increased by Nu 5 to Nu 10, and suppliers would stop supplying meat for 10 to 15 days before the price revision,” said a meat vendor, Nar Bdr.

Since democratic election in 2008, there were three pay revisions for public servants and one for local government members

During the first pay revision in January 2009, the price of consumer goods increased as annual average inflation measured in consumer price index (CPI)rose by 7.02% in 2010 from 4.4% in 2009.

CPI measures changes in the price level of market basket of consumer goods and services purchased by households.

With the lump sum salary allowance revision in January 2011, price increased by 10.92% in 2012 from 8.86% in 2011.

The third pay revision from July 1, 2014, the consumer goods price rose by only 4.58% in 2015 compared to 8.30% in 2014.

Moreover, prices remained fairly stable in 2018 as average annual inflation was 2.7% compared to 4.96% in 2017 despite the pay revision of local government members in July 2017.

The inflation trend for the last five years (2014-2018) averaged 4.8% largely contributed by higher food inflation of 5.9% while non-food inflation at 4% on average during the same period, according to National Statistical Bureau’s CPI report.

As the trend in food and commodity prices indicate a gradual rise along with the increase in fuel prices in the global market, CPI inflation forecast is projected to range within 5% to 6% in medium term this year, according to the fourth pay commission report.

The trend shows that inflation remained elevated from 2008 until 2014 and could be partly be attributed to subsequent revisions in the past. 

The substantial revision of pay, allowances, and benefits does lead to rise in price of local consumer goods, imported goods, services, and house rents.

“We really do not engage in fixing the price but intervene for unfair trade practices like exorbitant price, misleading, and cheating,” said Deputy Chief, Office of Consumer Protection, Jigme Dorji.

In addition, he said it is up to business policy considering the competitiveness, overhead cost, and transportation among others.

“Any aggrieved consumer can approach us if found practicing unfair and unethical trade practices, and one is liable for fines and penalties even leading to cancellation of licenses,” said Jigme Dorji. The mean household expenditure of the lowest income with 5.5 members was estimated at Nu 10, 574, as per the Bhutan Living Standard Survey, 2017.

Pic courtesy: facebook

Thukten Zangpo from Thimphu