| October 25, 2020

Inflation at double digits even after lift of blockade

Inflation at double digits even after lift of blockade
KATHMANDU, April 21: Though the spiral in prices is easing due to improvement in the supply system that was disrupted by the blockade imposed by India for nearly five months since mid-September, inflation is still at double digits. The government is still struggling to tame prices that started climbing rapidly after the tarai turmoil.   

According to 'Current Macroeconomic and Financial Situation of Nepal', a periodic study done by Nepal Rastra Bank (NRB) on the basis of eight months data in the current fiscal year 2015/16,  inflation as measured by the  Consumer Price Index (CPI) moderated to 10.2 percent in mid-March. The inflation has started moderating since mid-February after the CPI hit a peak of 12.1 percent in mid-January. While inflation came down to 11.3 percent in mid-February, it fell further to 10.2 percent in the first eight months of the current fiscal year.

Inflation is still high in comparison to the NRB target of containing price rises at 9.5 percent in the current fiscal year.  "Consumer price inflation continued to show a glide path since mid-January 2016 on account of the improved supply of fuel and other consumable items following the return of normalcy at the southern customs points," reads the NRB report.

According to the report, the food and beverage group inflation saw a rise of 12.8 percent and the non-food and services group 10.1 percent in the review period.

" Going  forward, the inflation  rate  is  likely  to  moderate gradually  following  the  ease  in  trade routes in the southern parts of the country," the report added.

NRB is also hopeful about economic activities getting back to normal. "A rebound in economic activities is expected following gradual normalization in the supply of fuel along with other essential commodities in the country," the report stated.

"The reconstruction of physical structures ravaged by  earthquakes is [expected] to underpin the rebound. Consequently, the production of construction materials such as cement, rods, concrete and zinc sheets is likely to rise. This is likely to generate a salutary impact on job creation," it added.

Geographically, Kathmandu Valley saw  a  relatively  higher  rate  of  inflation at 14.3 percent,  followed  by the hills  region at 11.4 percent, the mountain  region at 10.5 percent and the terai at 9.6 percent during the review period.

Following the protests in the tarai and the subsequent unofficial economic blockade imposed by India, inflation started to climb due to the disruption in supplies. The spiraling prices and stagnation in economic output have led the central bank to conclude that the country could face 'stagflation' if the situation persists.