We don't see people spending too much, as they don’t earn like they used to.
CAMBODIA experienced a second consecutive month of deflation in November, according to month-on-month consumer price index (CPI) statistics released Wednesday, a sign that demand for goods continues to flag, and that the economy is a long way from recovery, analysts said.
Data published by the National Institute of Statistics (NIS) showed that deflation accelerated as prices fell 0.6 percent last month compared with October, when they dropped 0.3 percent, even if CPI increased on an annualised basis.
Food prices fell 0.9 percent in November, data showed, and restaurants slashed prices 2.2 percent.
Clothing and footwear prices fell at the same rate, according to NIS figures.
Nick Owen, a Cambodia specialist at the Economist Intelligence Unit, said the data reflected the generally depressed state of economic activity in the Kingdom.
“The Cambodian economy is clearly still some way from recovery, with garment exports, investment approvals and tourist arrivals all weak,” he told the Post on Wednesday, adding it was still too early to blame demand-side trends for recent deflation.
Kem Sithan, the government’s inflation specialist as undersecretary of state at the Ministry of Commerce, said he was too busy to comment Wednesday.
Although prices fell month on month, data showed prices in November were 1.3 percent higher than during the same month last year, when the high food prices of August and September 2008 began to tail off significantly.
Although month-on-month inflation had begun to speed up, November’s data showed an end to an annualised deflationary cycle, “mainly due to last year’s lower statistical base” at the end of 2008, Owen said.
Cambodia had seen annualised deflation since March on the back of record prices last year before the economic crisis hit the Kingdom.
Though persistent deflationary pressures caused Japan a major economic headache in the 1990s, and more recently since the economic crisis, ANZ Royal CEO Stephen Higgins said Wednesday that Cambodia’s less-developed nature makes deflation less of a concern.
“In a developing market like Cambodia, the demographics and socioeconomic changes provide a very strong counterweight,” he said. “That is, the population growth, emerging middle class … all provide a strong stimulus to demand over time, which makes a deflationary spiral unlikely.”
Both Higgins and Owen said the recent rise in deflationary pressure was not cause for too much concern.
Most economists agree that recent deflation will likely be shown to be insignificant, as Cambodia’s economy is expected to record GDP growth of more than 4 percent next year, according to the International Monetary Fund.
The IMF predicted in a December 9 report that Cambodia would experience 5 percent annualised inflation this year and would see price rises remain in the mid-single digits in 2010.
In recent weeks, there were signs that food prices may have risen, although this won’t be confirmed until the NIS releases its final report for 2009 at the beginning of the new year.
Phou Puy, president of the Federation of Cambodian Rice Millers Association, said Tuesday that rice prices had risen by between 5 percent and 10 percent since the end of November.
This was mainly due to demand-side pressures caused by brokers in neighbouring Vietnam and Thailand looking to buy up supplies for sale on the world market, he added.
South Korea has already said it plans to stockpile rice after this year’s harvest due to projected food shortages, and the Philippines has held repeated rice tenders in the past two months that have pushed up prices on global markets.
Deflation goes unnoticed
In Phnom Penh’s markets, vendors and buyers say they have barely noticed recent price decreases, complaining that overall prices are higher than last year. The main problem remains purchasing power due to continued economic weakness.
“Now we don’t see people spending too much, as they don’t earn like they used to,” Lim Chan, a grocery seller at Kandal Market, said Wednesday. “[I have] also reduced my expenses.… I don’t earn much.”
ADDITIONAL REPORTING BY MAY KUNMAKARA