Pay hike will have minimal impact on inflation

A joint report by the Ministry of Economic Affairs and the National Statistical Bureau conclude that civil service pay hike would have a very minimal impact on inflation.

It says that aggregate demand is not going to rise so much as to give inflationary pressure in the economy.

“ This is because the increase in the disposable income (6% plus 20% House Rent Allowance] is not commensurate with the cumulative inflation rate of 26 % [calculated from 2011 to April 2014]. The real increase in income is actually not there or nullified,” claims the report.

It says that since inflation build-up in Bhutan is typically because of inflation in India, there is no direct relationship with the pay revision. The report claims that inflationary pressure will be there only if the prices in India are increasing but it says that indications are that prices are likely to stabilize because of the new policy initiatives of the BJP led government to contain inflation in India.

“On the home front, we are beginning to witness a cut throat competition among wholesalers and retailers in the retail sector and this is expected to dampen inflationary pressure,” says the report.

This finding was borne out when officials in the field found out that given the large number of shops and competition among them many of the prices of items remained the same both before and after the pay hike. This was especially so for things sold in grocery shops, retail shops and even wholesalers.

Even in the farmers centenary market the prices of dairy, vegetable and fruit items remained largely the same and any fluctuations in price was influenced more by the seasonality of the items and other factors but not the pay hike.

An official said, “Around the pay hike time the prices of some vegetables like chilli may have appeared higher but it is not linked to the hike as the first crop of chilli and some vegetables had just come out and farmers were charging more as always.”

Recent surveys show that the price of chilli and some vegetables has dropped significantly from those times given that it is now widely available.

Hikes of prices of vegetables and fruits have been found to be more related to the supply conditions in India and also transportation costs.

The report says that the further expanded role and mandate of the FCB Ltd in the distribution and marketing chain is going to go a long way in stabilizing the prices of both imported and domestic consumer goods in the country. “All these and other developments augur well for the consumers as well as for the overall long term growth of the economy,” says the report.

It says that in the past, one of the areas to watch out when pay revision is effected was rental and accommodation services. The report says that conditions have changed so much since then as the housing market today has reached a tipping point where people are faced with more supply than the demand, and the rents are instead falling instead of rising, even after the pay hike.

A shopkeeper Dawa Dorji in Sabjzi Bazar said, “I don’t know what people are talking about especially when some of them on TV claim that shops are increasing the price of goods after the pay hike. The majority of our clients are not civil servants and with the amount of competition around it will be suicidal for any shop to even sell above the MRP.”

He said that prices were more influenced from India if the manufacturers there increased the prices of goods.

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