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Cambodia’s consumer price index to increase 6.4% in 2022: AMRO

Harrison White

The ASEAN+3 Macroeconomic Research Office (AMRO) has forecast Cambodia’s consumer price index will rise above the regional average tipped to peak at 6.4% in 2022 then drop to 4.4% in 2023 as the protracted war in Ukraine and persistent inflation have ushered in a new set of challenges for policymakers.

In its virtual July quarterly update, AMRO forecast that in the ASEAN+3 region, defined as ASEAN plus China, Korea, and Japan, inflation increase will be 5.2% this year, up 1.7% from the April forecast, then moderate to 2.8% in 2023.

Cambodia’s highly-dollarized economy softening the impact 

The National Bank of Cambodia has forecast the Kingdom’s inflation rate would be around 4% in 2022. Cambodia has been impacted by higher prices of energy (crude oil, coal, and gas) which has led to higher transportation and utility costs.

Rising prices of grains, edible oils, and fertilizers due to war-related supply disruptions have led to a surge in food prices and which have also impacted on inflationary pressures.

Cambodia’s medium term inflation rate had remained steady with an annual average of 3% – 5%, considered stable for a developing economy after 2008 saw a spike of around 30% due to the Global Financial Crisis.

To read more about NBC’s 2022 inflation forecast click here.

Answering a question from Cambodia Investment Review on the reason for Cambodia’s higher then regional average CPI increase this year AMRO Chief Economist, Mr. Hoe Ee Khor explained the country was highly dependent on imports.

“Cambodia is considerably more reliant on international imports than its regional neighbors and hence is more impacted by the rising energy and food prices that are occurring due to geopolitical issues and ongoing supply chain constraints,” Hoe Ee Khor said.

However, the chief economist commented Cambodia’s highly dollarized economy had protected it from more severe inflationary pressures such as in Laos which is expected to hit a 14%+ CPI increase due mainly to the falling value of its local currency.

Cambodia’s economy to grow in line with the region

Cambodia’s gross domestic product (GDP) growth was also shaved down to 4.9% this year from the 5.2% forecast in April, mainly attributed to the sharper than expected downturn in China.

“Cambodia is very reliant on its economic ties to China and hence the sharper than expected downturn in China will have a greater impact on Cambodia as well as the tightening of capital flows to emerging markets,” Hoe Ee Khor added.

The World Bank recently forecast Cambodia’s real growth is projected to reach 4.5% in 2022 as anticipated impacts from negative terms of trade are caused by rising oil prices and a cyclical slowdown in America and China. Over the medium term, the economy is expected to trend back to potential, growing at around 6%.

To read more about the World Bank’s 2022 growth forecast for Cambodia click here.

For the region AMRO also reduced its short-term growth forecast to 4.3% due to the impact of the recent COVID-19 outbreak in China and stronger headwinds arising from the war in Ukraine, and tighter global financial conditions.

According to AMRO in the United States, surging prices have caused the Federal Reserve to tighten monetary policy at a faster pace than expected, which has raised concerns about an imminent recession. Financial markets have sold off and risk aversion has spiked, leading to capital outflows from emerging markets such as Cambodia.

“The recent COVID-19 outbreak in Shanghai had led to lockdowns and disrupted production and supplies in the region. Accordingly, growth for the whole year (2022) has been shaved down for China and the region,” it stated.

“Navigating this formidable environment, ASEAN+3 policymakers are now facing difficult policy trade-offs as they balance the need to sustain the growth momentum while containing the inflationary pressure,” it added.

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