Inflation moderates to single digit

Kathmandu, May 17

Consumer price inflation, which had been in double digits since the fourth month (mid-October to mid-November) of this fiscal following the disruptions in supply lines due to tensions along Nepal-India border points moderated to single digit after five months along with improved supply situation. Narrow inflation wedge between Nepal and India was another important factor to tame the inflation in single digit.

The Macroeconomic Report of the ninth month unveiled by Nepal Rastra Bank (NRB) today shows that the consumer price inflation moderated to 9.7 per cent in mid-April from a peak of 12.1 per cent in mid-January.

Consumer price inflation has slipped since mid-January after normalcy was restored in the southern customs points. Consumer price index stood at 11.3 per cent in mid-February as the border blockade at the southern plains organised by the Madhes-based political parties ended from the first week of February. Such inflation was 10.2 per cent in mid-March.

Inflation of food and beverages dropped in the review period. The inflation of food and beverages group dropped to 10 per cent as against 10.3 per cent in the previous month. Meanwhile, non-food and services group inflation remained stable at 10.2 per cent in mid-April as compared to the previous month.

Meanwhile, inflation in India has also slightly moderated since January due to fall in oil prices. Narrow inflation wedge between India and Nepal is another reason behind moderate inflation as the country is largely dependent on the southern neighbour for import of daily essentials, industrial raw materials and is entirely reliant on it for fuel import.

“Inflation in the country was 9.7 per cent in mid-April as compared to 5.4 per cent in India during the same period, showing an inflation wedge of 4.3 per cent during the review period,” says the NRB report. Such inflation wedge was 5.4 per cent in mid-March.

A year ago, such inflation in Nepal was 6.9 per cent compared with 4.9 per cent in India, reflecting a narrower inflation wedge of two per cent.

The rise in inflation wedge between Nepal and India was on account of lingering impact of earthquakes of April and May in 2015 and the obstruction of the southern trade routes. However, the inflation differential is narrowing on account of improved supply situation in Nepal following the return of normalcy in the southern trade routes, according to the central  bank’s report.