Business

Inflation Reaches 12 Percent, Alarming Business Leaders

By Kyaw Hsu Mon 23 August 2016

RANGOON — Burma’s Central Bank has publicized an inflation rate of 12.14 percent, surpassing the predictions of the World Bank and worrying business leaders that inflation in the country could be on an upward spiral, dampening local demand for goods.

A World Bank report last year put inflation at 10 percent for the 2015-16 fiscal year, ending in March, and forecast a rise to 11.3 percent in the 2016-17 fiscal year, “due to a combination of supply pressures caused by the floods and currency depreciation.”

Burma’s total trade volume dipped in the first quarter of this fiscal year, compared to the same period last year, along with the size of the trade deficit—although the years since the launch of reforms in 2011 have seen a dramatic rise in the trade deficit, which could still widen as larger amounts of foreign investment drive demand for foreign materials.

“If government can’t set better trade and economic policies, the [inflation] rate could reach higher levels,” U Thein Tun, chairman of the Myanmar Bankers Association and founder of the Tun Foundation Bank, told The Irrawaddy.

The 12 percent inflation rate exceeds bank interest rates of 8 percent, leading to fears of instability in Burma’s nascent financial sector.

U Thein Tun pointed to an “unstable [US] dollar exchange rate” as a contributing factor to inflation, and said the government should provide a “solution.”

The Oxford Business Group said late last year that the victory of Daw Aung San Suu Kyi’s National League for Democracy in the November general election would “bring renewed investor confidence”; runaway inflation could chip away at this confidence and erode potential gains.

Economist U Aung Ko Ko pointed to the adverse impact of double digit inflation on working class people in Burma, due to rise in the price of basic commodities. The official minimum wage remains 3,600 kyats per day (US$3), among the world’s lowest.

“I’ve repeatedly said, from the time of the last government, that the inflation rate should be kept within single digits,” U Aung Ko Ko said, stating something below bank interest rates of 8 percent as an ideal.

He also cited a likely fall in production, with higher prices killing local demand for goods and services, as a side effect of persistently high inflation. He also suggested that banks might find it difficult to “survive” with the current interest rates they are able to offer.

U Zaw Lin Htut, chief executive officer of the Myanmar Payment Union, echoed Aung Ko Ko in saying that, if inflation remains higher than bank interest rates, people will commit savings to the black market, which is “very risky.”

He also said that a rise in the cost of living would cause savings deposits in banks to drop. The government needs to find a solution promptly, before it “gets any worse,” he said.

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