By Kinzang Choden, Thimphu

Inflation in Bhutan has remained relatively stable for October 2024, recording a headline inflation rate of 1.34 percent year-on-year, which is slightly down from the 1.35 percent recorded in September 2024. However, the national average inflation rate from January to September 2024 stands at a higher 3.01 percent, primarily driven by rising food prices.

Food Inflation Sees Notable Increase

The most significant factor influencing Bhutan’s overall inflation trend has been the rise in food prices, with food inflation reaching 4.62 percent in October 2024. This marks a noticeable rise in food costs, which has impacted the overall cost of living for consumers. The increase in food inflation was largely attributed to a sharp 5.14 percent rise in the Food and Non-Alcoholic Beverages index, indicating that essential daily commodities like rice, vegetables, and dairy products have become more expensive. In contrast, the Alcoholic Beverages and Betel Nuts index saw a decrease of -1.70 percent during the same period, reflecting lower costs in this category.

As Bhutan imports a significant portion of its food items, price fluctuations on global markets, currency exchange rates, and transportation costs play a major role in driving food inflation. The government’s focus on food security and self-sufficiency remains critical in mitigating the impact of these price increases, especially for households that rely heavily on staple foods.

Non-food Inflation Experiences a Decline

On the other hand, non-food inflation saw a considerable decrease, dropping to -1.72 percent in October 2024. This decrease was driven by a fall in key non-food sectors such as Housing and Utilities, Health, and Transport. The Housing and Utilities index dropped by -0.99 percent, reflecting stable or even declining rental prices and utility costs. The Health index also fell by -0.50 percent, suggesting that health-related costs, particularly medical services, have not seen significant increases recently. Most notably, the Transport index plummeted by -9.11 percent, which is likely due to reduced fuel prices and lower transportation costs for both goods and passengers.

The decrease in non-food inflation could provide some relief to consumers, offsetting the burden of rising food prices. However, the combination of both food and non-food price movements continues to influence the overall inflationary trend in the country.

Month-on-Month Inflation Sees Uptick

While the year-on-year inflation rate remained relatively stable, month-on-month inflation increased by 0.65 percent in October 2024, up from 0.65 percent in the previous month. This rise was observed across both food and non-food categories, indicating a broad-based increase in prices.

For the food sector, a 1.89 percent month-on-month rise in the food index contributed significantly to the overall increase in inflation. This increase in food prices can be attributed to seasonal changes, global supply chain disruptions, and the rising cost of imported goods. Non-food prices also saw a modest increase of 0.49 percent month-on-month, with key drivers being housing costs, health services, and transport services.

Regional Inflation Patterns

Inflation trends in Bhutan also vary regionally, with the capital city of Thimphu experiencing a notable month-on-month inflation increase of 1.16 percent in October 2024. This rise was driven by both food and non-food price increases. Food prices in Thimphu increased by 1.89 percent, while non-food prices rose by 0.49 percent. The capital city, being the central hub for business, trade, and government services, tends to experience higher inflation rates due to its larger population and increased demand for goods and services.

The central region, which includes Bumthang, Dagana, Sarpang, Zhemgang, Trongsa, Tsirang, saw a more modest increase of 0.38 percent in month-on-month inflation. The Western region, encompassing Gasa, Punakha, Thimphu, Wangdue Phodrang, Haa, Paro, Samtse, and Chhukha, also recorded a moderate increase of 0.47 percent in October, driven by food and non-food price changes. Similarly, the Eastern region, which includes Monggar, Trashigang, Trashi Yangtse, Lhuentse, Pema Gatshel, and Samdrup Jongkhar, reported a rise of 0.71 percent, largely influenced by increases in food and non-food indices.

Annual Average Inflation Trends

In 2023, Bhutan saw a decline in overall inflation, with the national average headline inflation falling to 4.23 percent, down from 5.64 percent in 2022. This decrease in inflation was driven by a slower annual increase in the non-food index, which rose by just 4.44 percent in 2023, compared to higher rates in previous years. The reduction in non-food inflation suggests that the country’s efforts to stabilize prices in key sectors, such as transport, housing, and utilities, have had a positive effect.

Food inflation in 2023 was slightly higher than in 2022, rising to 3.97 percent from 3.95 percent. While this represents only a marginal increase, it highlights the ongoing challenges in managing food price volatility. One major factor contributing to the increase was a sharp rise in the price of alcoholic beverages and betel nuts, which saw an inflation rate of 4.62 percent, up significantly from 1.16 percent in 2022.

Impact on Purchasing Power

Despite the relative stability in overall inflation, Bhutan’s consumers are facing a gradual erosion of their purchasing power. As of October 2024, the purchasing power of the Ngultrum, as measured by the Consumer Price Index (CPI), stood at Nu. 56.0 compared to December 2012. This means that Nu. 100 in October 2024 is equivalent to only Nu. 56.0 at 2012 prices. Over the last year (October 2023 to October 2024), the purchasing power of the Ngultrum has decreased by 1.33 percent, reflecting the cumulative effect of price increases in the economy.

This erosion of purchasing power, while moderate, poses challenges for households, particularly those with fixed incomes. The decline in real income due to rising prices may affect consumer spending patterns, and increase demand for more affordable alternatives or local products.

The inflationary pressures on food prices, particularly in the wake of global supply chain disruptions and seasonal changes, are likely to continue impacting Bhutan’s overall inflation trend in the coming months. However, the decrease in non-food inflation, particularly in the transport and housing sectors, may provide some relief to consumers. The government’s efforts to stabilize prices and promote domestic production of essential goods will be key in managing inflation and supporting the purchasing power of households.

As Bhutan navigates the challenges of inflation, policymakers and businesses alike will need to prioritize strategies that ensure stability in food prices while promoting broader economic growth. Given Bhutan’s reliance on imports for many goods, efforts to improve local production and reduce dependence on foreign markets could mitigate some of the impacts of external price fluctuations.

With the outlook for inflation remaining relatively stable, consumers and businesses alike will be watching closely to see how inflationary trends develop in the coming months, particularly as the country faces global economic uncertainties and shifting market dynamics.