There are people who believe that the central bank’s tendency is a conservative one in depicting inflation

Prices of consumer items have reached a 40-month high in the country in December, averaging at 11.6 per cent, according to Nepal Rastra Bank's Macroeconomic Report published on Monday. Five months of unrest in several parts of the Tarai and four months’ of the blockade imposed from outside on the entry of Nepali imports have made the supply of goods and services scarce, with the demand at the same level or rising. This has naturally pushed up the prices of goods and services, as transport prices increased as well as other costs of the goods. Add to this the unscrupulous business people, many of them are, increased the prices of goods beyond the level justified by the supply constraints. The government agencies’ inadequacies in managing the difficult situation have also contributed to this rise in consumer prices. The last time the prices were at this level was in August 2012 when inflation stood at 11.9 percent. After that, the rising rates of inflation had been coming down slowly, and between January 2014 and October 2015, the inflation rate was a single digit.

There are people who believe that the central bank’s tendency is a conservative one in depicting inflation. However, this is the only credible agency to monitor these economic trends; therefore, its data should be taken at face value. During the period under review, food items and beverages rose by 14.8 percent and non-food items and services by 9.1 percent. The prices of food items were particularly pushed up by a 48.9 percent hike in the prices of pulses and legumes, and the prices of ghee and cooking oil by 42.3 percent. Similarly, non-food items went up, but most of them by much less percentages than the rates of the above-mentioned food items. The reasons included the hikes in transport costs, the costs of raw materials and other inputs, and increase in the hours of daily power outages. The Kathmandu Valley was probably the hardest hit because the main aim of the Tarai agitators was to choke off the supply of essentials to the capital. As a result, the valley saw a price rise of 13.2 percent.

But the high increases in the inflation rates during the period of Tarai unrest and the blockade were unnatural and their effects will gradually fade away as the supply of goods return to their normal level, as it seems to be gradually doing now. The single largest factor in normal times in price rises is the prices of petroleum products, which have been going down, just this week they were further decreased by the Nepal Oil Corporation despite the difficulty in getting petrol, diesel, kerosene and LPG gas. Because Nepal imports most of its needs, as shown by the wide gap between its import bills and export earnings, the prices of goods, particularly in India, its largest trading partner, also naturally influence the prices in Nepal. In India, inflation stood at a 15-month high of 5.6 percent. Whether the NRB inflation figures show the reality on the ground is a major question because it takes into account the official prices of petroleum products, whereas the stark fact since the blockade has been that much of these products have been sold and bought in the black market at several times the NOC prices.

What is cooking?

The price of petroleum products has plummeted in the international market to an all time low. The Nepal Oil Corporation (NOC), as such, has also decided to slash their price substantially. The price of petrol, diesel, and aviation fuel has been reduced. The NOC had not been reviewing their price since November 1, 2015. Earlier it had been revised every fortnight taking into account the price of fuel in the international market. No doubt, the slashing of price for oil will provide relief to the consumers who have to pay a hefty amount to commute. To add to their woes the continuing blockade at the check post in Birgunj has resulted in their shortages. They are even sold in the black market, and the authorities are mute spectators who know that this clandestine activity is going on.

Now that the price of fuel has been reduced can we expect the lowering of the expensive transport fares which have skyrocketed of late. Meanwhile, the price of LPG cylinders is to remain the same. This is no relief considering that there is acute shortage of cooking gas in the market, although it is said that they are available in the black market with relative ease.