Prices of goods and services increased by 4.91 percent between September 2016 and September 2017. This year-on-year inflation rate is one of the lowest till date.
Year-on-year inflation measures the change in prices between a particular month and the same month in the previous year.
For instance, year-on-year inflation for November this year indicates price change between November this year and November last year. In August, the year-on-year inflation stood at 5.34 percent.
The prices of food increased by 6.82 percent. For non-food items, prices increased by 3.66 percent in September compared with that of September last year. Prices of local goods and services increased by 5.22 percent. Prices of imported items, in the same period, increased by 4.62 percent.
The purchasing power of ngultrum (PPN), as measured by consumer price index published by the National Statistical Bureau (NSB) was Nu 76 as of last month. This means, Nu 100 in September 2017 is worth only Ngultrum 76 in December 2012. This mean PPN decreased by 4.68 percent in the past 12 months.
When the prices of goods and services increase, purchasing power of ngultrum goes down, and this is called inflation.
As per the CPI, NSB’s market basket has 151 items (436 varieties), which are further classified into 12 major groups.
The bureau has identified sample outlets, which are permanent establishments or retail shops from which monthly price of goods and services are collected or quoted. These include groceries, clothing and footwear, restaurants, hardware shops, vegetable vendors and service providers, among others.
In September, price increase in food category slowed down from 7.32 percent in August to 6.82 percent. Likewise, in the non-food category, inflation subsided to 3.66 percent from 4.04 percent.
While all the groups in both food and non-food category experienced slower rate of price rise compared with previous months, milk, egg, and cheese witnessed a disinflation of 0.42 percent. Among the non-food group, purchase of vehicles experienced negative growth of 0.05 percent.
The fall in inflation rate, however, does not translate in absolute reduction in prices of goods and services because inflation entails the rate at which prices increase. A deflation would result in reduction of prices.
Inflation has more to do with elasticity of various goods and services, an NSB official said, because of the weights attached to various goods and services.
Weights, according to the CPI, reflect the relative importance or contribution to the total consumption expenditures of all households. It is determined using the spending patterns of households during some previous weight reference period.
A good or service is considered to be highly elastic, if a slight change in price leads to a substantial change in demand or supply. So more weights are attached to commodities that do not impact the demand and supply irrespective of the price change.
The NSB attaches almost 52 percent of the total weights to the imported items and the rest for domestically produced goods and services. This is understandable given the amount of goods and services the country imports.
While the house rents were given more weights among the non-food group, the price did not change much between June last year and June this year.
Among the food groups, bread and cereals, and rice were given the highest weight.
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.
The economy saw one of the lowest inflation rates last year at 3.22 percent.