AS the only interim economic indicator, given the lack of quarterly GDP numbers and nonexistent unemployment data, consumer inflation figures for the end of the third quarter last week suggest the domestic economy continues to recover slowly, but surely.
With consumer (CPI) inflation up 1.9 percent in September on the same month of 2009, prices and most likely demand have again risen on last year’s low base during the trough of the economic slump. But since consumer prices were down over 2 percent at the same time last year on 2008, we are still not back to where we were just after the crisis hit.
The trend has been reflected in tourism with the announcement last week that flight traffic was back to about 2008 levels at Phnom Penh Airport, according to operator Société Concessionaire des Aéroports. Garment-sector analysts have also pointed to a recovery that is just approaching base levels from before the onset of the crisis. Considered together, these indicators suggest Cambodia will consolidate its economic recovery next year.
Certainly, inflation data points to an economy that has turned the corner. Though CPI inflation was down overall in 2009 by 0.7 percent, a sign of sliding demand, this year it has crept up despite a lull in July when the index rose just 1.6 percent year on year, the lowest rate since November 2009. In September, CPI prices were up 0.5 percent on August as both year-on-year and month-on-month inflation increased together at a rate that is manageable, a good sign following last year’s rollercoaster of CPI inflation and deflation.
With little else in the way of reliable data – especially the government’s unrealistic 0.1 percent GDP growth figure for last year – monthly CPI updates since the onset of the crisis have provided a welcome, regular insight. Still, beneath the figures are some worrying signs that erode the cautious optimism that surrounds the latest positives.
The Kingdom’s persistently weak riel and surging fuel prices are likely to account for the bulk of recent inflation, both of which continue to subdue a rebound rather than indicate its good health. Trading at about 4,220 riels to the US dollar at Phnom Penh money changers yesterday, the local currency has recovered little value since struggling in May, which means domestic purchasing power is still undermined.
The riel situation serves to raise the price of imports in local currency terms, and diminishes the spending power of Cambodians, given that many predominantly use the local currency, particularly in the countryside. Premium fuel prices at the pump have risen steadily since the start of the year from around 4,600 riels a litre to about 4,850 riels today, another drain on financial resources, given that all fuel is imported, and that petrol and diesel add up to a considerable portion of business costs.
Inflation is certainly manageable now – compared to the 25 percent-plus annualised price surges in July and August 2008 – while current trends reinforce the belief the economy is slowly emerging from its stupour. But with so few official indicators, few people in Cambodia will believe in the strength of a post-crisis comeback until they experience it for themselves.