Logo of Phnom Penh Post newspaper Phnom Penh Post - Inflation rate dips to 2.5% in first half

Inflation rate dips to 2.5% in first half

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The NBC projects a 2.5-2.8 per cent inflation rate in the second half on expected price hikes on volatile items such as foods and petroleum-related goods and services. Heng Chivoan

Inflation rate dips to 2.5% in first half

The official Cambodian consumer price index (CPI) remained at relatively low levels in the first half of 2021, which the government and economic observers insist is still manageable and expected to accelerate later in the year on the back of rising global oil prices.

The annualised inflation rate for the first half of this year was 2.5 per cent, or 0.6 percentage points lower than the 3.1 per cent chalked up in July-December 2020, the National Bank of Cambodia (NBC) said in its first-half report released last week.

“The inflation rate had been low at the beginning of the year but gathered pace from March, due to the appreciation of foodstuffs, coupled with the rising prices in the segment of goods and services related to petroleum,” the NBC said.

The costs of foodstuffs gained 2.9 per cent between the first halves of 2020 and 2021, compared to 5.0 per cent between the January-June of 2019 and 2020, largely driven up by a sharp jump in demand after the third coronavirus outbreak – dubbed the “February 20 community event” marking the date it was first detected – and subsequent lockdown, the central bank noted.

The price of petroleum-related goods and services, on the other hand, surged 5.3 per cent in the past year, from a 3.3 per cent deflation rate between the July-December periods of 2019 and 2020, it said.

“The increase in inflation rate on [petroleum-related goods and services] is in line with the global oil price trend, as demand gradually picked up at the time when Opec [the Organisation of the Petroleum Exporting Countries] and its partners were reducing production,” it added.

NBC governor Chea Chanto said the central bank has been “more proactive” in stimulating economic activity. The monetary policy has been conducted in a precautionary manner, with tactical foreign exchange (forex) interventions and reductions in interest rates for loans in the local currency, he maintained.

The central bank has been “maintaining the reserve requirement at a lower rate, giving financial institutions greater ability to hold enough liquidity to respond to demands for more loans”, he said.

Without providing further details, Chanto hinted that the NBC was taking other approaches to tighten liquidity, and reduce the pressure on inflation.

Hong Vanak, an economic researcher at the Royal Academy of Cambodia, told The Post on July 29 that the low inflation rate reflects sound macroeconomic management by the government, and macrocosmic stability in the Kingdom.

“This means revenue and expenditures are resilient to the current state of the spreading Covid-19 pandemic,” he said, adding: “It also substantiates the sound management by the domestic authorities – the NBC and other relevant institutions for instance – that manage the country’s cashflow and macroeconomic environment.

“This also shows that imports and exports were also stable, and did not push inflation up very far. The low inflation also bears positive impact for the daily lives of people who have had it tough during the health crisis – on their spending,” he said.

Vanak maintained that the low inflation suggests that the local currency is trading stronger against the greenback.

The core CPI, which excludes the prices of goods with high price volatility such as raw food products and energy, rose at a slow steady pace of 1.2 per cent on a yearly basis in the first half – from 2.1 per cent in July-December 2020 – due to weak overall economic activity, according to the NBC.

The NBC projected a 2.5-2.8 per cent inflation rate in the second half on expected price hikes on volatile items such as foods and petroleum-related goods and services. Core inflation could tick up a smidge, but will likely remain at low levels, it said.

The central bank expects average inflation for 2021 to reach 2.6 per cent.

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