Why is the Cost of Living Increasing in Cambodia? An In-Depth Analysis!
In recent years, Cambodia has experienced rapid economic growth, but along with this growth has come an undeniable increase in the cost of living. While this trend is not unique to Cambodia, its impact on local families and individuals is deeply felt. The rising costs, from housing to everyday goods, are making it difficult for many to balance their income and expenses.
This blog post will explore the primary reasons behind the increasing cost of living in Cambodia, backed by data and expert insights.
Balancing Income and Expenses in Cambodia
The economic reality in Cambodia today poses a significant challenge for many, as wages fail to keep pace with inflation. Individuals across the country are struggling to balance their income and expenses in an environment where costs continue to rise. The growing divide between what people earn and what they need to spend is forcing many Cambodians to make difficult choices daily.
1. Rising Inflation Rates
Cambodia has seen a consistent rise in inflation, which directly impacts the cost of everyday goods and services. Although the Asian Development Outlook (ADO) report from September 2024 lowered the inflation forecast for 2024 from 2% to 0.5% due to the slow rise in food prices and a drop in fuel prices during the first half of the year, inflation is still a concern. The long-term trend shows that inflation has been pushing the prices of basic necessities, such as food, transportation, and utilities, higher each year.
The effects of inflation are felt most heavily in essential sectors like food and housing, where even small price increases can have a substantial impact on a household’s budget. For instance, the price of rice, a staple in Cambodian diets, has steadily increased over the past few years. Moreover, global economic events, such as supply chain disruptions and fuel price fluctuations, have further contributed to the rising costs in Cambodia.
2. Housing Costs in Urban Areas
The real estate market in Cambodia, particularly in urban centers like Phnom Penh, has seen a significant increase in housing prices. The influx of foreign investment, coupled with rapid urbanization, has driven up the cost of property and rent in cities. For example, Knight Frank’s report showed that the prime residential development land index fell by 1.4% from the first to the second quarter of 2024, which might seem like a decrease, but the long-term trend indicates a continuous rise in property prices over the last decade.
Urbanization has intensified the demand for housing, pushing prices higher as more people migrate to cities in search of better job opportunities. This has left many low-income families in a precarious situation, as they are forced to allocate a larger portion of their income toward rent or mortgage payments. The expansion of Cambodia’s real estate sector has not been accompanied by affordable housing initiatives, leaving a gap between the demand for affordable housing and its availability.
3. Utilities and Energy Prices
Utility costs, such as electricity and water, have also become a significant burden for many households. As Cambodia’s economy grows, the demand for electricity has skyrocketed, pushing prices higher. Despite some government efforts to stabilize electricity costs, many regions, especially rural areas, still face high utility bills. The push toward industrialization and urban expansion has also increased the demand for energy, further straining Cambodia’s infrastructure and leading to increased prices.
In Phnom Penh, the cost of electricity is among the highest in the region, with an average price of $0.18 per kilowatt-hour, according to the Electricity Authority of Cambodia. The cost of water is similarly rising, driven by increased demand and aging infrastructure. These rising utility costs add to the financial pressures on families who are already struggling to make ends meet.
4. Education and Healthcare Expenses
Cambodia’s education and healthcare systems are also contributors to the rising cost of living. Private education has become more common as many parents seek better-quality schooling for their children, but the costs associated with private schools are often out of reach for many families. Even public schools, which are nominally free, can require additional expenses for uniforms, books, and other materials.
Healthcare costs have similarly increased, with many Cambodians opting for private healthcare services due to the limitations of the public healthcare system. Private healthcare offers better service and shorter wait times but comes with higher costs. For families dealing with chronic illnesses or health emergencies, these costs can quickly become overwhelming. According to a 2024 report by the Ministry of Health, healthcare expenses account for a significant portion of household spending, particularly in urban areas where private clinics and hospitals are more prevalent.
5. Impact of Global Economic Factors
Cambodia’s economy is closely tied to global markets, and as such, it is vulnerable to international economic trends. The COVID-19 pandemic, for example, had a significant impact on global supply chains, driving up the cost of imported goods. Additionally, the ongoing war in Ukraine and other geopolitical tensions have caused fluctuations in fuel prices, which in turn affect transportation costs and the prices of goods that rely on fuel for production and distribution.
Cambodia is a net importer of oil, meaning that any increases in global oil prices are directly felt by consumers. The increase in fuel prices has led to higher transportation costs, which are passed down to consumers in the form of higher prices for goods and services. This is particularly evident in rural areas, where transportation infrastructure is less developed, and the cost of delivering goods is higher.
6. Wage Growth vs. Living Wage
While Cambodia has seen some wage growth, it has not kept pace with the rising cost of living. The minimum wage for garment workers in 2025 is set at $208 per month, which represents a modest $4 increase from the previous year’s wage of $204. However, this increase does not adequately address the higher costs of living in urban areas. Many workers in other sectors earn even less, making it difficult to cover basic expenses like food, housing, and healthcare.
According to Ngeth Chou, Founder and Chairman of F.I Vision Capital Plc, wages have recently reduced due to the economic slowdown, especially in the informal sector and among self-employed individuals. This reduction in income, coupled with rising expenses, has left many Cambodians in a precarious financial situation.
7. Inequality in Income Distribution
Another factor contributing to the rising cost of living is the growing income inequality in Cambodia. While the country has seen significant economic growth, much of this wealth has been concentrated in the hands of a small elite. This has led to a widening gap between the rich and the poor, with the wealthiest Cambodians enjoying a higher standard of living while many others struggle to afford basic necessities.
As wealth concentrates at the top, the demand for luxury goods and services increases, driving up prices in sectors like real estate, hospitality, and entertainment. This has a ripple effect on the overall cost of living, making it more difficult for low- and middle-income families to keep up.
8. Increased Consumption and Lifestyle Changes
Cambodia’s rising middle class has also contributed to the increasing cost of living. As more Cambodians achieve higher levels of income, they are able to afford more goods and services, which drives up demand and prices. This is particularly evident in urban areas, where lifestyle changes have led to increased consumption of imported goods, luxury items, and services like dining out and entertainment.
Livingcost.org reports that Phnom Penh, with an average monthly cost of living at $802, is becoming one of the “more affordable cities globally,” but the lifestyle there is similar to developed countries, which is expensive to maintain in a developing nation. For locals, especially those earning lower wages, this shift in consumption patterns has made it difficult to sustain a reasonable quality of life.
9. Impact of Foreign Investments
Foreign direct investment (FDI) has played a significant role in Cambodia’s economic development, particularly in sectors like real estate, construction, and manufacturing. While this has brought growth and job creation, it has also contributed to rising costs. In cities like Phnom Penh and Siem Reap, foreign investment has driven up the price of real estate, making it more difficult for locals to afford housing.
Foreign-owned businesses, particularly in the tourism and hospitality sectors, often cater to wealthier expatriates and tourists, creating a dual economy where prices for goods and services are higher in areas frequented by foreigners. This has led to a cost-of-living disparity between locals and expats, with locals struggling to keep up with the higher prices set by businesses targeting a wealthier clientele.
10. Environmental Factors and Climate Change
Climate change is another factor that is driving up the cost of living in Cambodia. The country is highly vulnerable to the effects of climate change, including more frequent and severe floods, droughts, and other extreme weather events. These environmental challenges have a direct impact on agriculture, which is a major part of Cambodia’s economy.
Floods and droughts reduce agricultural yields, driving up the prices of food and other agricultural products. Additionally, the cost of rebuilding infrastructure after natural disasters further strains the government’s budget, which can lead to higher taxes or cuts in public services.
New Income Sources and Strategies to Manage Finances Effectively
As the cost of living continues to rise, many Cambodians are seeking new income sources and adopting strategies to manage their finances more effectively. Wage labor remains a primary source of income, but entrepreneurship and the gig economy are becoming more popular. Platforms like Grab and food delivery services offer opportunities for supplemental income, although these jobs often come with their own set of challenges, including long hours and limited job security.
Entrepreneurs in Cambodia are also exploring new business opportunities, particularly in the digital space. The rise of e-commerce and online marketplaces has opened up new avenues for income generation, particularly for small business owners. However, starting a business comes with risks, and many entrepreneurs face challenges such as limited access to capital and regulatory hurdles.
According to financial experts like Ngeth Chou, it’s crucial for Cambodians to budget wisely and seek out investment opportunities that offer long-term financial stability. This could include saving for the future, investing in real estate, or exploring new business ventures that capitalize on Cambodia’s growing economy.
Conclusion
The rising cost of living in Cambodia is a complex issue influenced by a variety of factors, including inflation, housing costs, global economic trends, and income inequality. While the country continues to experience economic growth, many Cambodians are finding it difficult to keep up with the increasing expenses associated with daily life. Addressing these challenges will require a combination of government policy, private sector investment, and individual financial planning to ensure that the benefits of Cambodia’s economic growth are more equitably distributed across the population.
What do you think about Cambodia’s rising cost of living? How are you managing your finances in these challenging times? Share your thoughts in the comments below!