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All-time low inflation rate in 2016

Inflation: The economy saw one of the lowest inflation rates last year at 3.22 percent. This figure is the lowest annual inflation the National Statistical Bureau (NSB) recorded since 2004.

However, the lower inflation rate will not translate into an absolute decrease in price of goods and services. It entails a slower rhythm to the price increase.

From 8.8 percent in 2011, inflation hit an all-time high of 11 percent in 2012. After a persistent figure of about 8 percent for the two successive years, it came down to 4.58 percent in 2015 on the back of a fall in global fuel prices.

An official from the bureau said that last year’s inflation is one of the lowest figures realised in this decade. It was, however, attributed to stabilisation of prices. “There weren’t much fluctuations in the price of goods and services that have more weightage,” he said.

For instance, there was little change in the fuel price but insignificant to influence the overall inflation. The revision on vehicle taxes, he said, had made its mark in 2014. Thereafter, the prices of vehicles did not change radically.

Following the salary raise, house rents had also experienced a double-digit price increase in 2014 and 2015. This too was brought down to three percent last year.

The NSB official said that food commodities, transport, including fuel prices and housing and electricity are attached more weights for the sake of calculating inflation.

Weights reflect the relative importance or contribution to the total consumption expenditure of all the households. It is determined using the spending patterns of households. The more current the weights, the more reflective they are of current consumer spending patterns.

The price inelastic goods, like fuel are attached more weights because despite the change in price of such goods and services, the demand and the supply is unlikely to be affected.

The current CPI weights were updated in 2012 following the Bhutan Living Standard Survey (BLSS).

The year-on-year CPI for December last year increased by 4.60 percent. This means that between December 2015 and December last year, the prices of food and non-food items went up by 5.91 percent and 3.73 percent respectively.

The prices of domestic goods and services increased by 6.24 percent while the prices of imported commodities went up by 3.10 percent.

The year-on-year inflation felt in December was the highest inflation figure realised last year following a 3.92 percent increase in November.

The purchasing power of Ngultrum (PPN), as measured by CPI was Nu 78 as of December 2016. This means Nu 100 in December 2016 was worth only Ngultrum 78 at December 2012 prices. The PPN has decreased by 4.39 percent between 2015 and December 2016. This is the effect of the price rise in the economy.

Tshering Dorji

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