Cambodia experienced a substantial decrease in inflation in 2023, with a rate of just over 2%, a drop from nearly 5.5% in 2022.

The reduction was largely attributed to the sharp decline in prices of key products related to oil and gas. 

Experts emphasised that the low inflation rate also reflected improvements in domestic production, highlighting the country as a key player in supplying foodstuffs to both regional and global markets.

External headwinds barely affect production

Despite global economic uncertainty last year, stemming from the ongoing Russia-Ukraine war and geopolitical competition among superpowers, fuel-related product prices have been gradually declining, with the drop in crude oil prices leading to a sharp decrease in food prices.

According to the National Bank of Cambodia’s (NBC) 2023 annual report, the country’s overall inflation was 2.1%, lower than the previous year’s 5.4%, attributed to lower prices of fuel-related goods and services and a reduction in food inflation.

The central bank reported that commodities and services related to fuel fell by 2.7%, following a rise of 11.1% in 2022, as global crude oil prices decreased by 28.1% from an average of $100.8 per barrel in 2022 to $77.7 per barrel in 2023. 

In Cambodia, gasoline prices fell by 5.6% in 2023 after having increased by 24.4% in 2022 (compared to 2021); natural gas prices dropped by 4.7% in 2023 from the 5.4% increase experienced in 2022 (over 2021).

“Food inflation decreased to 3.2% from 5% in 2022, owing to reduced pressures on costs such as fertilisers, fuel and transportation, as the supply of domestic agricultural products continued to grow,” the NBC stated. 

“The decline in food inflation includes reductions in the price of rice from 2.4% to 1.5%, meat from 4.3% to 2.5%, fish from 5% to 4.2%, vegetables from 7.9% to 5.1% and fruit from 7.7% to 4.2%,” it added.

Core inflation slowed to 2% from 4.4% in 2022, influenced by the lower prices of fuel-related goods and services and reduced food costs.

Inflation of key commodities and services, such as restaurants, decreased from 6.6% to 2.1% in 2023; the cost of clothing and footwear from 7.4% to 3.1%; entertainment and culture activity fees from 5.6% to 3.1%; and transportation fees, excluding fuel-related goods and services, from 2.1% to 1.1%, according to the NBC.

NBC governor Chea Serey explained that the country keeps its national currency, the riel, stable against the US dollar within a 2% margin, in marked contrast to the large currency fluctuations seen in some other countries.

“Exchange rate stability plays a significant role in bolstering investor confidence, mitigating inflationary pressures and maintaining macroeconomic stability,” she stated. 

“Economists regard the exchange rate as a key indicator of economic health. As former International Monetary Fund [IMF] managing director Per Jacobsson once noted, enhancing the value of the national currency is crucial for fostering national economic development,” she added. 

The central bank governor mentioned that the stabilisation of the riel exchange rate against the US dollar depends primarily on prudent monetary policy, through appropriate riel circulation management and interventions to sell the US dollar on the exchange market as necessary. 

She noted that this could be achieved by maintaining a sufficiently high level of international reserves, which reached about $20 billion in 2023, up 12.3% from 2022, and covering more than seven months of goods and services imports.

Evaluation and outlook

On January 31, the IMF projected that Cambodia’s economy is set to grow by 5.3% in 2023, driven by a resurgence in tourism and robust performance in non-garment exports. However, the outlook is not without risks, predominantly due to potentially weaker growth in the US, which accounts for over 40% of Cambodia’s exports, and in China.

According to the IMF, inflation in Cambodia has been fluctuating; after decreasing from its peak in June 2022, it rebounded to 3.9% in October 2023, influenced by rising food and fuel prices.

“The central bank has gradually unwound pandemic-era support measures, including increasing reserve requirements for foreign currencies,” the central bank stated.

The report also noted that the country’s fiscal positions improved since 2022, buoyed by stronger-than-anticipated revenue performance. It said the current account deficit narrowed, largely owing to reduced gold imports.

“US monetary tightening and high levels of private debt in Cambodia could impact growth. Geopolitical tensions and trade policy uncertainties add another layer of risk, as do commodity price fluctuations and climate events,” it added. 

Looking ahead to 2024, the IMF and the NBC have projected the Kingdom’s economic growth at 6.1% and 6.4%, respectively. Both entities stated that the optimistic forecast is supported by recovery in the tourism and manufacturing sectors. 

The IMF and NBC expect inflation to stand at 3% and 2.5% for 2024, respectively.