Inflation shoots up to 6.95 percent in first month

September 25, 2019

My Republica, September 25, 2019

Rise in prices of consumable goods, labor costs and Indian inflation pushed prices up: NRB

KATHMANDU: Inflation shot up to 6.95% in the first month of the current fiscal year – FY2019/20 owing mainly to spike in prices of consumable goods in the market.

According to ‘Current Macroeconomic and Financial Situation of Nepal (Based on One Month’s Data of 2019/20)’ released by the Nepal Rastra Bank (NRB) on Tuesday, the year-on-year inflation, measured in consumer price index (CPI, stood at 6.95% in mid-August, compared to 4.19% a year ago. 

While the inflation had remained subdued for some months, the prices have started to rise at a faster pace in the past four months.

The central bank data shows that average annual inflation remained at 4.64% in the last fiscal year. The CPI of the first month is higher than the NRB’s target to tame the average inflation at 6% in the current fiscal year.

NRB’s Research Department Chief Gunakar Bhatta attributes the surge in inflation to pressure in the supply of essential goods, including food and vegetables, rise in labor cost and upward trend of consumer price in India. “If you see the recent trend, there is an upward pressure in inflation since the month of Baisakh,” Bhatta told Republica. 

Food prices have been rising rapidly in recent months, driving up overall inflation toward higher side, according to Bhatta. The NRB data shows that food and beverage inflation stood at 8.02% in the review period compared to 6.27% year ago. 

The food and beverage group represents vegetables, fruits, spices, meat, fish and beverages, among others. 

Similarly, there has been a jump in Salary and Wage Rate Index which has also fueled price rise in the market, according to Bhatta. “One of major sources of inflation is the labor cost. The higher wage index means that labor cost has also gone up. This has also pushed the inflation to higher side,” said Bhatta.

The year-on-year salary and wage rate index increased to 13.44% in mid-August 2019 compared to 7.4% a year ago, according to the NRB data.

Albeit mild, inflationary pressure in neighboring India is also contributing to the increase in prices in Nepal, according to Bhatta. “India has adopted the inflation target regime with the medium-term target of 4% for a five-year period. But, if you see the data, the inflation in the southern neighbor is rising, albeit moderately,” said Bhatta. “The inflation in the neighboring country, which accounts for over two-thirds of our total trade and with whom our exchange rate is pegged, has some effects in our prices,” he added. 

Taming the prices is going to be a challenge for the central bank this year, say economists.