Inflation Hits 7.1 Percent in June, Official Says

Inflation reached 7.1 percent in June compared to the same month last year as consumer prices continue to rise in Cambodia, an official at the Ministry of Planning said yesterday.

The release of the inflation figure comes after officials at the ministry said earlier this month that data on consumer prices had been delayed due to problems with the ministry’s computer systems.

The government last suspended the monthly inflation report for six months in March 2008 after it showed an inflation rate of 18.7 percent from January 2007 to January 2008.

The last time year-on-year inflation moved above 7 percent was in February 2010, when inflation was recorded at 7.3 percent. Year-on-year inflation in May was recorded at 6.5 percent.

Though the consumer price in­dex has yet to be published by the Ministry of Planning, economists say policymakers should start identifying the causes of rising prices and take action to curb its effects.

“We already released [the figure], but we do not publish [it] yet,” said Sim Ly, deputy director of the department of national ac­counts within the Ministry of Planning.

Mr Ly declined to elaborate on the reasons for the latest rise in consumer prices and said he did not know when exactly the ministry would publish the consumer price index in its usual monthly printed form.

Rising inflation has been affecting the Asia-Pacific region since the beginning of the year, when high capital inflows from troubled economies in the US and Europe began pouring into Asian economies.

More recently, rising commodity prices have been fueling inflation in countries like China, where inflation reached 6.5 percent in July, and Vietnam, where inflation reached 22 percent during the same month, according to government figures.

Most of the rises in Cambodia have been in food items such as meat, seafood and vegetables, though gasoline prices have also contributed to higher costs.

Oil prices globally are expected to fall soon due to a less than optimistic outlook for global demand. Over the past month, light sweet crude in New York has fallen by 15 percent and was trading yesterday morning at $82.85 per barrel.

In recent weeks the National Bank of Cambodia has considered raising the reserve requirement for banks – the amount of money that commercial banks are obliged to hold in cash at the central bank – to 16 percent of total cash assets from the current level of 12 percent. Increasing the reserve rate would take money out of the economy to help fight against inflation. So far, no such action has been taken. Ngoun Sokha, director-general at the NBC, could not be reached for comment yesterday.

Some economists believe that increasing the reserve requirement would be counterproductive as it would limit the ability of banks to lend to the agricultural sector, and thus help farmers take advantage of producing and selling more produce at a higher price.

“One clear solution [to inflation] in Cambodia is to produce more food,” said Chan Sophal, president of the Cambodian Economic Association. “That would require more credit to the agricultural sector, not a constraint on bank lending.”

Mr Sophal said that an inflation rate of around 7 percent was “rather high” but not “too high to worry about.”

“It reflects the global trend of inflation. This is part of the rising trend in commodity prices,” he said. “It reflects the cheaper dollar and is something that we should take into account for policy consideration.”

Controlling imported inflation from rising oil prices and construction materials was beyond the control of the government, though policy measures designed to increase wages in the face of rising prices were possible to implement here, he said.

Bankers say that lending to the agricultural sector has increased this year.

Acleda Bank’s loans to the agricultural sector this year have already surpassed the total number of loans to the sector throughout the whole of last year. In the first seven months Acleda lent $133.8 million to the agricultural sector compared to $116.5 million in 2010.

But there is still ample room for more lending.

“So far I have seen some action already, but I don’t think it’s enough to save the economy from inflationary pressure, ” said Kang Chandararot, president of the Cambodian Institute for Development Study.

Inflation “will reduce the living standards of poor people especially in the provinces. It will create some instability for investors.”

Mr Chandararot said that the government should look at increasing support and spending for farmers and food processing here in order to help rural communities fend off rising prices.

 

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