Inflation raked up to 6.95% in the first month of the current financial year 2019-20

Inflation raked up to 6.95% in the first month of the current financial year 2019-20

Inflation raked up to 6.95% in the first month of the current financial year – 2019-20 owing chiefly to a spike in the costs of consumable goods in the market.

As per the ‘Current Macroeconomic and Financial Situation of Nepal (Based on One Month’s Data of 2019/20)’ published by the Nepal Rastra Bank (NRB) on Tuesday, the year-on-year inflation, measured in consumer price index (CPI, stood at 6.95% in mid-August, compared to 4.19% a year ago.

While the inflation had continued suppressed for some months, the prices have begun to rise at a quicker pace in the past four months.
The central bank data shows that average annual inflation remained at 4.64% in the last financial year. The CPI of the first month is higher than the NRB’s target to tame the average inflation at 6% in the current financial year.

NRB’s Research Department Chief Gunakar Bhatta accuses the swell in inflation to pressure in the supply of essential goods, including food and vegetables, an increase in labour cost and an upward trend of consumer price in India. “If you see the recent trend, there is an upward pressure in inflation since the month of Baisakh,” Bhatta told Republica.

According to Bhatta Food prices have been growing rapidly in recent months, pushing up overall inflation toward the higher side. The NRB data shows that food and beverage inflation stood at 8.02% in the review period compared to 6.27% year ago.

The food and beverage group represents vegetables, fruits, spices, meat, fish and beverages, among others.

Likewise, there has been a jump in Salary and Wage Rate Index which has also fed a price rise in the market, according to Bhatta. “One of the major sources of inflation is labour cost. The higher wage index means that labour cost has also gone up. This has also pushed the inflation to the higher side,” said Bhatta.

The year-on-year salary and wage rate ratio rose to 13.44% in mid-August 2019 compared to 7.4% a year ago, according to the NRB data.

Albeit mild, inflationary pressure in neighbouring India is also adding to the increase in prices in Nepal, according to Bhatta. “India has adopted the inflation target regime with the medium-term target of 4% for five years. But, if you see the data, the inflation in the southern neighbour is rising, albeit moderately,” said Bhatta. “The inflation in the neighbouring country, which accounts for over two-thirds of our total trade and with whom our exchange rate is pegged, has some effects in our prices,” he added.

Taming the prices is going to be a challenge for the central bank this year, say economists.

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