Electronic income

Inflation hits low- and middle-income families hard

Thukten Zangpo

With property prices soaring, many people are feeling the pinch, but it is middle and low income groups that are being hit hardest.

Sharing the impact of inflation on his family, a construction welder in Thimphu, Singye, said he was struggling to feed his family of three.

Working four months a year, the 40-year-old said his income of Nu 30,000 a month was not even enough to meet his family’s basic needs. “I pay Nu 6,200 a month in rent and have to fund other necessities wisely.”

He said his family had to sacrifice a lot.

He is not alone.

Tenzin, 20, works as a sales clerk in a grocery store and earns Nu 10,000 a month.

Staying in a free apartment that the shop owner allowed them to stay in, she said she didn’t buy many vegetables because it was unaffordable. “I stopped buying eggs when the price went from 450 to 500 Nu per tray.”

She said inflation forced her to stop buying many daily necessities. “My salary is not even enough to meet basic needs.”

A housewife, Choden, who came to shop at the vegetable market in Thimphu, said food prices had doubled in recent months.

She and her three children depend on her husband, who is a civil servant. “We can’t afford to buy clothes for our children now.”

Choden claimed that her husband earned around Nu 17,000 per month and they struggled to meet monthly expenses.

One official said that after paying Nu10,500 rent, Nu3,500 to refuel his car and Nu6,500 for food and other expenses, he is left with only Nu3,000-4,000.

Economists have said any increase in the price of basics such as food, cooking gas and fuel in times of high inflation will force people to cut back on other priorities.

According to the National Bureau of Statistics, consumers are paying 5.57% more for the same goods and services than they paid for in March last year.

However, it has remained below the upper 6% threshold set by the Royal Monetary Authority since February this year.

Food prices increased by 4.01% contributing 36% to the headline inflation rate and non-food prices increased by 6.92% contributing 64% in March this year compared to the year last.

Fuel prices have more than doubled since May last year due to the conflict between Ukraine and Russia. Rising fuel prices have a cascading effect on the cost of goods as they increase transportation and production costs.

The World Bank, in its latest commodity market outlook report, said global food and fuel price shocks related to the conflict between Ukraine and Russia are expected to last at least until end of 2024.

“Energy prices are expected to rise more than 50% in 2022 before falling in 2023 and 2024, while non-energy prices, including agriculture and metals, are expected to climb nearly 20% in 2020 before to moderate,” he added.

National accounts 2021 statistics show that consumption expenditure measured in total final consumption expenditure of private households decreased by around 9% in 2020 compared to the previous year.

Consumer spending on food and non-alcoholic beverages fell 41%.

Economists say inflation has hit the economy as it recovers from job losses and wage cuts.

Price increases are highest for goods and services that make up the bulk of the expenditures of the poorest.

An economics professor at Royal Thimphu College, Sanjeev Mehta, said inflation is triggered by disruptions in global supply chains, rising fuel prices and increased consumer spending in the recovery phase. economy since the pandemic-induced recession in 2020.

He added that this hurts fixed income groups, informal sector workers, small businesses and the poor.

“Combined with higher unemployment, rising inflation will push more people below the poverty line, household debt will also rise and spending cuts will follow,” Sanjeev Mehta said.

He added that the government and the central bank are faced with a dilemma. “In order to support the recovery, monetary tightening and spending cuts may not be desirable. Administrative measures should be strengthened to avoid tendencies towards artificial shortages, black market and high margins.

Rising inflation has also eroded consumer purchasing power.

Ngultrum’s purchasing power was Nu 61 in March 2022 compared to December 2012, which means that Nu 100 today is only worth Nu 61 in March 2012.

As inflationary pressure in Bhutan is largely borrowed from India with more than 80% of goods imported from India, inflationary pressure is projected in the range of 5-7% in the medium term (fiscal years 2022-23 and 2023- 2024).