Inflation expectation, increment in the wages, and price rise in India accelerate inflation

KATHMANDU, July 20: Inflation, which has long remained subdued, has started to soar suddenly in the last months of the last Fiscal Year 2018/19.

Releasing the 'Current Macroeconomic and Financial Situation of Nepal, Based on Eleven Months' Data of 2018/19' on Friday, the Nepal Rastra Bank (NRB) said that the inflation as measured through the consumer price index (CPI) reached 6.2 percent in mid-June from 4.1 percent a year ago.

Inflation went up 5.3 percent in the previous month of the same fiscal year, according to the NRB data.

Inflation expectation, increment in wages, and price rise in India accelerated inflation in the review period, according to observers.

"The budget presented at that time has proposed a raise in the salary of government employees which has lifted the inflation expectation which fed into the price rise,” Gunakar Bhatta, an executive director at the NRB, told Republica.

“At that the time, as you can see in our wage rate index, the wage and salary index have also gone up. When the labor costs rises, it also contributes to inflation,” said Bhatta, who also heads the Research Department of the NRB.

According to the NRB data, the salary index and the wage rate index increased 6.6 percent and 10.3 percent respectively in the review period.

“The subdued inflation in India is going up, albeit marginally. Between November and April, the inflation rate in India has been below 3 percent. But, that went above 3 percent from May to reach at 3.2 percent in June. The rise in prices in Nepal is also due to price increase in India,” added Bhatta.

The jump in the price is also linked with the supply system of the country. Some say that some import restrictive measures introduced by the government in recent months could have also weighed on inflation.

While inflation took an upward trend in the fiscal year end and jumped to 6.2 percent in mid-May, the average inflation of the country is still below the target of the NRB.

The periodic report shows that food and beverage inflation rose to 6.7 percent in mid-June 2019 from 3 percent a year ago. Prices of cereal grains and their products rose 6.7 percent, meat and fish by 7.6 percent, and vegetables by 14.6 percent, according to the NRB data.

Non-food and service inflation stood at 5.7 percent in mid-June 2019 compared to 5 percent a year ago. Clothes, footwear, housing and utilities inflation rose 7 percent while transportation inflation went up 4.7 percent, according to the NRB data.

The Kathmandu Valley witnessed 7.1 percent inflation followed by 6.5 percent in the mountain, 5.8 percent in the tarai, and 5.7 percent in the hilly regions, shows the NRB report. These regions had witnessed 3.1 percent, 6.4 percent, 4.2 percent and 4.9 percent inflation respectively in the corresponding period of the previous year, according to the data.

 
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