Inflation Rises to 18.7% in Year To Jan 2008

Consumer prices rose 18.7 percent between January 2007 and January 2008, ac­cording to a consumer price in­dex report released Monday, which also shows a 24.2 percent increase in food prices in the same period.

While economists and government officials called the 18.7 percent increase very high, there was some skepticism about whether a new method of calculating the CPI, which measures prices on everything from food to fuel to clothes, had led to some inaccuracy.

Less than two months ago, the National Institute of Statistics said the inflation rate rose 10.79 percent between December 2006 and December 2007. The new CPI re­port by the NIS recalculates that figure upward to 16.3 percent.

The CPI’s methodology was re­adjusted to reflect perceived changes in how much people in Cambodia spend on particular commodities and goods. For ex­ample, if people spend more of their collective income on gasoline, the price of gasoline received a greater proportion or weight in the CPI, which is what the NIS used to measure inflation.

Hang Chuon Naron, secretary-general of the Ministry of Fi­nance, said the recalculated inflation rate is too high and he questioned the methodology the CPI report used, though he admitted he had not read the final copy.

“If you change the weights [in the CPI], it can be turned upside,” he said of the report. “This is an arbitrary weight.”

Hang Chuon Naron said the new report should have received more critical review before being released.

An analyst for the NIS, who declined to be named, defended the new methodology saying that, though the inflation rate is high, it is accurate.

The weights in the CPI change every five years, and the most recent methodology was ex­plained and shown to several economists before being used, the analyst said.

Chan Sophal, president of the Cambodian Economic Associa­tion, said the changes in the CPI’s methodology reflect how the country is developing.

For example the recalculation reflects people in Phnom Penh as spending about 5 percent of their collective income on gasoline compared to 1.72 percent under the old method.

It also shows people spending slightly more on food, from 39 percent to 43.2 percent previously. The new report also accounts for people spending more money on meats-from 7.3 percent to 9.6 percent.

“This can be temporary. We have to see if it persists in double digits,” Chan Sophal said of inflation.

In the short term, a high inflation rate will affect consumption rates of food and other products, and will make it more difficult for investors to make a profit, he said.

In the long term, it could discourage investors and stifle the economy if it continues, Chan Sophal added.

(additional reporting by Kay Kimsong)


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