Inflation wedge with India narrows
Kathmandu, January 30
The difference between inflation rates in India and Nepal stood at a record low of 0.4 per cent in December because of gradual decline in India’s inflation and improved supply situation that supported Nepal to tame inflation at the desired level.
Consumer price inflation was slightly lower at 3.4 per cent in India as compared to 3.8 per cent in Nepal in the same month. Inflation rate in Nepal was at the similar level of India also due to ‘base effect’ of last year. The inflation rate in the country was recorded at 11.6 per cent in the corresponding period of fiscal 2015-16.
Consumer price inflation had soared last fiscal due to supply line disruptions from India that started from last week of September 2015 and ended in first week of February 2016. Consumer price inflation that skyrocketed during the blockade gradually came down after the supply situation normalised.
“The inflation rate was actually supposed to be negative this fiscal as we had faced high inflation rate in last fiscal due to trade disruptions, but that could not happen due to price rise of non-food items,” said Nara Bahadur Thapa, executive director at the Research Department of Nepal Rastra Bank (NRB).
Along with the inflation rates continuously moderating in Nepal and India since July of last year, the inflation wedge between the two countries narrowed from 5.2 per cent in July to 3.5 per cent in August. The wedge narrowed further to 3.6 per cent in September, 2.5 per cent in October, 1.2 per cent in November and 0.4 per cent in December.
Inflation wedge is an indicator that reflects the difference in hike in prices of goods and services in Nepal and India.
The wider gap in inflation rates between Nepal and India was witnessed during the blockade, which stood at 6.4 per cent in January of last year when Nepal’s inflation was recorded at a whopping 12.1 per cent. Since the inflation has been gradually moderating in India over the months, Nepal’s inflation in January is expected to dip further as compared to 3.8 per cent of December because of base effect of last year, according to central bank officials.
The inflation rate in India directly impacts Nepal as the country’s two-third trade takes place with India.