Purchasing Power of Ngultrum (PPN) drops as inflation increases

Purchasing Power of Ngultrum (PPN) drops as inflation increases

Report states that during the observation period from 1981 to 2021, the average inflation rate was 6.9% per year

An item that cost Nu 100 in 1981 costs Nu 1,359.72 in the beginning of 2022. The purchasing power of the Bhutanese currency – Ngultrum – as measured by the Consumer Price Index (CPI) is Nu 60 as of September 2022 compared to December 2012. This shows that Nu 100 in September 2022 was worth only Nu 60 in December 2012 prices.

These and other significant economic findings have been highlighted by  the National Statistics Bureau’s (NSB) report, which was released on October 31, 2022, which also says that the price of consumer goods and services increased by 6.05% in September 2022 compared to the same month the previous year (4.97%). The report mentions that inflationary pressures in the country are being exacerbated by rising import prices for fuel and food. The inflation rate for food was 4.24%, while non-food recorded a higher increase of 7.61% compared to August.

“The Purchasing Power of Ngultrum (PPN) as measured by the 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,” the report says.

 The report also shows that during the observation period from 1981 to 2021, the average inflation rate was 6.9% per year. Overall, the price increase was 1,259.72%.  According to the report, transportation is the main driver of rising inflation among the 12 divisions, contributing 37% of total inflation with a 14.92% increase, followed by food and alcohol beverages division, which recorded a 4.42% increase and contributed 33% of total inflation. Clothing and footwear recorded the second highest increase among the 12 major divisions with 8.24%, contributing to 12% of the overall inflation.

The report underlines that food and non-alcoholic beverages contributed 4.42% of the increase; alcoholic beverages, tobacco, and narcotics contributed 4.42% of the increase; housing and utilities contributed 4.15% of the increase; furnishings, household equipment, and routine household maintenance contributed 5.71% of the increase; the health division caused a 5.71% increase; the communication division  a 0.04% decrease; and the recreation and culture division caused an increase of 1.73% on the year-on-year percent change.

The month-on-month report shows that the Consumer Price Index rose to 0.32% in September from 0.29% in August. The increase in the CPI was due to a 0.90% increase in prices for non-food items and a 0.36% decrease in prices for food items compared to the previous month. The increase in percent for non-food was primarily due to a 3.81% increase in transportation costs, which was aided by an increase in vehicle prices. According to the NSB report, the decrease in food prices was caused by a drop in the prices of vegetables, fruits, and eggs.

The report also shows a decrease in the price for food and non-alcoholic beverages by 0.37% and also a decrease in price for both alcohol, tobacco, and narcotics, as well as housing and utilities, by 0.19% and 0.87%, respectively, compared to the month of August.

On a month-to-month basis, all other divisions show no change in percentage from the previous month.

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 of 5.62% compared to a 1.24% increase in 2020.

The report reflects that food prices contributed to roughly 60% of the overall inflation rate in 2021, with non-food contributing 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 and alcoholic beverages contributed more than half of the total increase in 2021, followed by transportation at about 15% and clothing and footwear at about 11%.

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

In the meantime, the CPI is a measure of the average price changes in a household’s basket of goods and services has risen or fallen since a specific reference period known as the index reference.  

As of now, Bhutan currently compiles and publishes two price indices, namely the Consumer Price Index (CPI) and the Producer Price Index (PPI). The CPI is a measure of average price change over time in the prices of goods and services purchased by households, whereas the PPI is a measure of average price change over time in the prices of goods and services sold by domestic producers. The CPI measures price change from a consumer’s perspective, while the PPI measures price change from a producer’s perspective.

Nidup Lhamo from Thimphu