Up it goes

The Nepal Rastra Bank’s monthly review has given cause for concern as the consumer inflation rate has increased by 8.2 per cent during the first two months of the current fiscal year. The price index in the hilly region has gone up by even more, 9.1 per cent, whereas inflation levels in Kathmandu and the Terai went up by 6.8 per cent and 8.8 per cent respectively. The frequent hikes in the price of petroleum products, and the rise in the prices of goods of daily consumption like rice and sugar, construction materials as well as of transport and communication services have been blamed for pushing up the inflation rate. Those in the hilly regions are hit harder, as the prices of essential commodities like sugar, salt, rice, etc. there are much higher than in the easily accessible parts because of high transport costs. The poor security situation has added to the woes.

There are both avoidable and non-avoidable causes of inflation. The country has to bear with those that are beyond the government’s control. However, it could do much to soften the impact of inflation by keeping it within reasonable limits by designing and implementing a sound monetary policy. According to the NRB, the government expenditure has soared by 17.1 per cent and the trade deficit by 36.7 per cent. The government should try to curtail extravagant and unproductive activities and enforce a tighter fiscal discipline to rein in inflation.

Some experts fear that if the current trend of the decreasing people’s purchasing power continues, it may lead the already crisis-ridden economy to even deeper trouble. Some economists point out that the pegging of the Nepali rupee to the Indian currency and NRB’s commitments to the IMF have constricted the central bank’s manoeuvrability in checking inflation. Too much budgetary deficit without a robust growth in the productive sectors of the economy is also a recipe for inflation, and this, unfortunately, is the current state of affairs.