Inflation Sends Food and Fuel Prices Soaring

Ty Pouch, like many in Phnom Penh, is feeling the effects of higher prices.

“Every good including vegetables is higher and higher every day. Especially fish, beef and pork,” said Ty Pouch, 50, whose husband runs a small business.

“Before I spent 10,000 riel [about $2.50] a day for food, but now I must spend at least 18,000 riel [about $4.50] per day for my family. Even if I spend 18,000 a day, [it is] still not enough, we are not eating well,” she said last week.

The inflation rate in April was 5.94 percent over the same month last year, the ninth consecutive month inflation has been above 5 percent, according to the government’s latest Consumer Price Index, which is based on the cost of goods in Phnom Penh and was released on Monday.

In the 18 months prior to June 2004, inflation did not rise above 3 percent and the average inflation rate in 2003 was 1.15 percent over the average rate in 2002.

The new report shows price increases in all sectors. But the highest increases recorded are for rice, beef, pork, chicken, prahoc, egg, fuel and construction material.

The price of prahoc, the major source of protein in Cambodia, is up 59 percent over last April, chicken 27 percent, chicken eggs 33 percent, gasoline 22 percent, diesel 29 percent, and lumber 44 percent.

“When we ask businessmen why their prices are high they say it is because they do not have enough goods in the market,” said Khin Song, director of the National Institute of Statistics, which compiles price data.

“I think the price is higher because the production is insufficient for the people in the country and we also faced shortages from the drought,” Khin Song said.

“The river has no water, the lake has no water. How can the people plant the vegetables and catch fish?” Khin Song said.

Sok Hach, director of the Economic Institute of Cambodia, on Monday agreed that drought contributed to April’s higher inflation rate but noted that rising fuel prices were also a factor. Drought directly contributed to a 14 percent increase in rice prices, he said.

“The increase in the price of rice is a possible indication that we will see rice shortages this year,” he said. “I do not expect rice to decline before the next harvest.”

Sok Hach said that rice millers with stock could see benefit from the shortage. It will not profit rice farmers who sold in crop season, and the hardest hit could be city residents.

“People in Phnom Penh are not stocking rice…[they] buy it as they consume it,” he said. “In Cambodia part of salary is paid in food so this rise in cost translates into further increases.”

Sok Hach said it was very difficult to say whether wages are keeping up with prices, but he said food and fuel inflation is having a direct impact on standards of living.

While little can be done in the short-term to reduce the price of food, Sok Hach said the government could do more to lower gas prices.

About 26 percent of the price of fuel is made up of taxes, he said, adding that fuel costs over the last year have been up to 70 percent lower in Vietnam.

“If you are a motorbike taxi driver using one liter a day, you are paying the government $100 a year in taxes,” he said.

Sok Hach said that lowering the tax could increase revenue by decreasing smuggling, which, in turn, could lower the distribution costs of gasoline companies.

“Even if he makes extra money from being a taxi driver he cannot support our family, because the price is higher and higher,” said Sok Phally, 52, whose husband is a motorbike taxi driver and a soldier working for the Defense Ministry.

“If the price is up, the poor people cannot make business, but the rich can because they have the capital,” Sok Phally said.

Last year 500 riel purchased 2 eggs, she said.

“Now 500 riel, only 1 egg.”

According to Sok Hach, inflation has not been a problem for the Cambodian economy in previous years for two reasons. “Inflation has been kept low by keeping the riel stable to the US dollar, and because of imports, the demand for domestic goods has not been so high,” Sok Hach said.

If inflation continues to rise, access to credit, already low in Cambodia, could decrease.

Banks raise their interest rates when inflation rises, Sok Hach said, and the poor, who are already subject to hefty monthly money lending rates, could be further squeezed.

“The official rate follows closely the inflation rate,” he said, “but the informal rate is much higher.”

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