Fuel Price Cut Leads to Reduction in Consumer Price Index

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“Drukair is passing on savings to consumers derived as a result of lower fuel prices with airfare reduction starting from 1 January 2018. Airfare is being reduced by 15 percent for all Bhutanese on all domestic and international sectors."

Fuel Price Cut Leads to Reduction in Consumer Price Index in Bhutan. (Source: https://www.youtube.com/watch?v=wAtDGFWIxPo)

 

On 11 November 2017, after the reduction in fuel prices came into effect, the government stated that a review would be carried out after six months, to assess whether the benefits of the reduction in fuel prices have been passed on to citizens and its impact on the economy at large.

Lyonchhen Dasho Tshering Tobgay wrote to the Minister of Economic Affairs on 4 January to submit a sector-wise report on the benefits received by the general public after the reduction in fuel prices from the date of its implementation.

Reduction in Consumer Price Index

The Consumer Price Index (CPI) information for the months of December 2017 and January 2018 were released recently.

“And this information is necessary to ascertain the impact of fuel prices on food or non-food items within the economy, and should be analyzed with at least a quarterly data.

However, based on the CPI data available for November 2017 alone, a reduction of 0.37 percent in non-food prices is already observed compared to the previous month, owing mainly to the decrease in fuel price,” said the Economic Affairs Minister, Lyonpo Lekey Dorji.

The National Statistics Bureau (NSB) defines the Consumer Price Index as a measure of changes in the average retail prices of a market basket of goods and services purchased by households for day-to-day living. 

It shows how much, on average, prices of goods and services have increased or decreased from a particular reference period, commonly known as the base period. NSB estimated in November 2017 that the reduction in fuel prices would bring about a decrease in the CPI by approximately 0.74 percent.

The CPI is one of the major indicators that determine the effectiveness of an economic policy. It is used to formulate fiscal and monetary policies and monitor their effect on the overall economy among a lot of other uses. The CPI in Bhutan comprises of 151 items (food and non-food items).

“Being a landlocked mountainous country, the reduction in fuel prices is expected to stimulate the economy by lowering transportation costs, thereby resulting in the drop in prices for consumer and industrial goods and services,” said Lyonpo Lekey Dorji.

How the data is derived

The Economic Affairs Minister explained that the NSB uses sample outlets (retail shops and permanent establishments) to collect monthly price of goods and services. The outlets are selected based on a set of pre-determined criteria.

“For the current CPI, prices are collected from a sample of 557 outlets. In order to understand the ground impact of the reduction in fuel prices on all food and non-food items, this information will need to be analyzed. The Office of Consumer Protection (OCP) also carries out some form of price monitoring on a periodic basis.”

Reduction in the fare for public transportation

Based on available information, for now, some of the direct impact of the reduction of fuel prices that have been noted are as follows: the Road Safety and Transport Authority (RSTA) has revised the fares for public transport following the drop in fuel prices.

The revised fare for taxis is less by Nu 2 per km within a district and Nu 1 per km for journey outside the district. For coaster buses, the ticket cost has decreased by Nu 0.13 per km per person.

“For example, a passenger travelling from Thimphu town to Semtokha in a reserved taxi would now pay Nu 126 instead of the earlier rate of Nu 140. Another example is if a passenger travelling from Thimphu to Bumthang in a coaster bus used to pay Nu 380, after the revision, they would pay Nu 344.45 now,” explained Lyonpo Lekey.

According to the study, the monthly flow of passengers travelling to other places from Thimphu alone is around 20,653 on average and these numbers were multiplied by the reduction in fares.

This will provide a basic idea on the net cost savings for the general public. There are 286 buses, 50 city buses and around 4,000 taxis across the country as per the records maintained by RSTA.

The study also found that the airline carriers spend around 30-50 percent of their operating costs on fuel.

Drukair is passing on savings to consumers on all domestic and international flights

“Drukair is passing on savings to consumers derived as a result of lower fuel prices with airfare reduction starting from 1 January 2018. Airfare is being reduced by 15 percent for all Bhutanese on all domestic and international sectors."

"For international travellers, a 5 percent discount is being offered which is expected to further spur tourism. With this move, Drukair is expected to forego Nu 97 million in revenue,” said Lyonpo Lekey.

“Since we’ve not yet incorporated the data for the month of December 2017 and the first two months of this year, it is not possible to ascertain the holistic impact of the reduction in fuel prices, but we know for sure that since fuel is the input to transport, it has a positive spiralling effect on our economy,” said the Economic Affairs Minister.

On 11 November last year, the Royal Government of Bhutan announced that the full benefits of the excise duty exemption on petrol and diesel would be passed on to the general public of Bhutan, without imposing any additional taxes.

The exemption of excise duty at source reduced the average price of petrol by Nu 10.29 (17%) and the average price of diesel by Nu 7.75 (14%).

 

By Sonam Yangdon (This article first appeared in The Bhutanese and has been edited for the New Bhutan Times)

 


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