Inflation Hits 14-Month High As Food Prices Continue Rise

The year-on-year inflation rate for May rose to 6.5 percent, the highest level in 14 months, according to figures released yesterday by the National Institute of Statistics.

The figures also show that consumer prices rose by 1.4 percent in May compared to the previous month, the highest monthly rise since July 2009.

Rising food prices of items such as meat, fish and vegetables are the main cause for the rise. Though steady increases in fuel, electricity and clothing as well as goods and services have also contributed.

According to the data, food and non-alcoholic beverages increased by 8.3 percent year-on-year. Meat prices increased by 12.4 percent, and seafood increased by 10.9 percent. But rice, perhaps the most important staple for most of Cambodia’s rural population, fell by 0.1 percent over the course of the last 12 months.

In early 2011, the government and economists raised concerns that high capital inflows to the Asia Pacific region would fuel high commodity prices and persistently high levels of inflation. Those worries have proven to be accurate with inflation in China, Vietnam, Indonesia and others all on the rise.

Last month the Finance Ministry said it would “use all means” to hold annual inflation at 5 percent. Though that could prove hard to achieve, as the central bank has little control over interest rates.

The only measure Cambodia has to curb inflation is to reduce public spending.

In March, Prime Minister Hun Sen and representatives from the International Monetary Fund, Asian Development Bank and World Bank warned that rising commodity prices and growing inflation rates in Asia risked spilling over into Cambodia and adversely affecting the country’s poor.

That month in its latest economic update for the region, the ADB said risks to economic growth included “higher-than-assumed oil prices, which could hurt the prospects for Cambodia’s tourism and clothing exports and push up inflation.”

Despite inflation having risen beyond 6 percent, the IMF still predicts that inflation will be 5.2 percent by the end of the year as oil prices have come down from around $100 per barrel in March to around $90 today and are expected to stay stable.

Suzuki Hiroshi, chief economist at the Business Research Institute of Cambodia, said that the main reason for high inflation this year was due to a so-called quantitative easing program carried out by the US government, which had lead to a high volume of dollars flowing into international markets. (Quantitative easing is a process whereby the government buys bonds using newly printed money.)

That process came to an end in June.

“I expect the international price movement will be stabilized in the near future,” Mr Suzuki said.

He added that inflation in Cambodia was still lower than in countries like Vietnam, where it stands 21 percent, and in India, where it is at 9 percent.

“This means that Cambodia’s government has some room and time to tackle inflationary pressures,” he said.

Peter Brimble, ADB senior country economist, said that the rise in consumer items would more likely have an adverse effect on the urban poor, as rice prices had not risen over the past year.

“Something I would watch for very carefully is the urban disadvantage,” he said, adding that the inflation rate was being closely monitored but was not a “huge worry”.

The ADB predicts the year-on-year inflation rate to be 5.5 percent by the end of 2011.

 

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