Inflation falls to 14 year low of 4.2 %

August 22, 2018

Improvement in supply-chain management, lower inflation rate in India attributed

KATHMANDU, Aug 22: The annual average inflation dropped to a 14-year low of 4.2 percent in the last fiscal year. 

According to the Nepal Rastra Bank (NRB), the inflation measured in consumer price index (CPI) moderated to 4.2 percent in Fiscal Year 2017/18. The annual inflation was at this level in FY2003/04 when CPI was tamed at 4 percent. 

Since then, inflation has been on an upward trend with the price rising to double-digit level in FY2008/2009. Though the average annual inflation started to moderate from one of the highest levels of 12.6 percent in 2008/09 in subsequent fiscal years, there were sporadic spikes in the CPI. For example, the year-on-year CPI edged up to 12.1 percent in mid-January in 2016 in the wake of unofficial blockade imposed by India, strikes and political turmoil in Tarai due to protest by Madhes-based parties and disruption in supply system of the country.

However, inflation has been on a downward trend in subsequent fiscal years, barring 9.6 percent inflation in FY2012/13 when the CPI rose to 9.9 percent.

The slower pace of price rise in the last fiscal year is mainly due to the low-level of inflation in India from where Nepal makes nearly two-thirds of its imports.

“Improvement in supply-chain management and the lower inflation rate in India contributed to the low inflation in the review year,” reads the ‘Current Macroeconomic and Financial Situation of Nepal (Based on Annual Data of 2017/18)’ released by the NRB on Tuesday.

Not only was the pace of price rise slowest in the last 13 years, the inflation also remained below the projected level of the central bank for the second consecutive year. Compared to the NRB’s projection that the inflation rate will remain below 7 percent, the CPI remained at 4.2 percent in FY2017/18. Similarly, the inflation was at 4.5 percent in the last fiscal year compared to the central bank’s initial projection of 7.5 percent.

NRB officials are upbeat about the low level of inflation in the country in recent years. 

“The price hike remaining below five percent in two straight fiscal years is very low and a cause for celebration for us who have observed inflation rising by double-digit until recently,” Nara Bahadur Thapa, an executive director of the NRB, told Republica. “This is also an important indicator for us from the stability point of view,” Thapa, who is also the chief of the Research Department of the NRB, said.

According to Thapa, the correction in inflation rate is also a result of the base effect. “Since the price of goods and services was at a very high level in FY2015/16 due to external shock, the base remained at the low level. This base effect also contributed to the downward trend of price rise in recent years,” he added.



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