Slowdown in price rises makes NRB optimistic on inflation

April 10, 2017

My Republica, 10th April 2017, Kathmandu

Price of goods and services has not gone up in the current fiscal year as much as it had in the last fiscal year, the data of Nepal Rastra Bank (NRB) shows.

Inflation, as measured in Consumer Price Index (CPI), has further moderated to 2.9 percent in the eighth month Fiscal Year 2016/17 with the 'spiral-like price rise' observed in the latter half of the last fiscal year largely coming under control, according to 'Current Macroeconomic and Financial Situation of Nepal' (Based on Eight Months' Data of 2016/17) released by Nepal Rastra Bank (NRB) on Sunday. The CPI inflation was at 10.2 percent in mid-March 2016.

The inflation (year-on-year) is on a declining path from the first month of the current fiscal year. While it was 10.4 percent in the last month (mid-July) of the last fiscal year, inflation fell to 8.69 percent on the first month (mid-August) of the current fiscal year 2016/17. It was at 3.3 percent in the seventh month (mid-February).

The CPI is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food and medical care. It is calculated by taking price changes for each item in the predetermined basket of goods and averaging them.

The NRB has attributed the fall in inflation in recent months mainly to the previous year's base price effect and improved supply situation. As the country was reeling under the Tarai turmoil and subsequent unofficial economic blockade imposed by India last year, the inflation had jumped to 12.1 percent in mid-January while it had remained at double-digit in most of the months of the last fiscal year 2015/16.

Decline in growth rate of goods and services from the beginning of the current fiscal year has made the central bank optimistic about inflation outlook. “Inflationary pressure continues to ease. The inflation outlook is expected to remain subdued and is likely to undershoot the annual target of 7.5 percent in 2016/17,” reads the periodic report of the central bank.

The food price, the sub-index which public tends to presume as inflation, remained negative by 0.4 percent in mid-March 2017 from 10.3 percent in the corresponding period of the previous year, according to the NRB figure. Those whose prices under food category have fallen toward negative includes pulses and legumes (-11.2 percent), ghee and oil (-5.8 percent), cereal grains and their products (-0.1 percent) and vegetables (-8.3 percent). Price of spices, milk products and eggs and fruits, however, has gone up by 2.4 percent, 3.9 percent and 0.9 percent, respectively.The non-food inflation also moderated to 5.6 percent during the review period from 10.2 percent in the corresponding period of the previous year. “The decline in growth rate of prices of clothes and footwear, communication, housing and utilities, transportation, among others, contributed to moderation in non-food inflation,” the report added.