Inflation moderates to 4.4 percent on subdued food prices

Published On: May 22, 2019 10:35 AM NPT By: Republica  | @RepublicaNepal

Average inflation of nine months at 4.2 percent, lower than the government's target 6.5 percent

KATHMANDU, May 22: Inflation has moderated to 4.4 percent in the ninth month of the current fiscal year 2018/19 from 5.3 percent a year ago mainly due to subdued food prices. 

Releasing the 'Current Macroeconomic and Financial Situation of Nepal (Based on Nine Months' Data of 2018/19), the Nepal Rastra Bank (NRB) said that the pace of price rise has been slower than the previous year.

Though there were concerns that the economy operating above potential driven by strong domestic demand and expansionary budget and monetary policy could drive up inflation, the low food prices have held down headline inflation in the current fiscal year. 

According to the periodic report of the NRB, the average inflation of nine months is 4.2 percent. The average inflation is lower than the government and the central bank's target to contain the price rise at an average of 6.5 percent in the current fiscal year 2018/19.

Food and beverage inflation stood at 2.8 percent in mid-April 2019 compared to 4.7 percent a year ago. The NRB data shows that the vegetables price fell by 4.4 percent in the review period while pulses and legumes also went down 0.7 percent. Fruits prices rose 0.9 percent compared to 9 percent in the same period in the last fiscal year.

Similarly, non-food and service inflation stood at 5.7 percent in the review period compared to 5.8percent a year ago. The price rise of communication has been negative. According to the data, communication inflation fell 1.7 percent in the review period. Inflation of education and housing and utilities, meanwhile, rose by 5 percent and 7.4 percent, respectively.

The mountain region witnessed 6.2 percent inflation followed by 4.8 percent in the hilly region, 4.7 percent in the Kathmandu Valley and 4 percent in Tarai districts. These regions had witnessed 7 percent, 6 percent, 4.3 percent and 5.7 percent inflation, respectively in the corresponding period of the previous year. 

Economists say that the subdued inflation is largely due to low inflation in India, ease in the supply of goods, and rise in agriculture output.

The year-on-year consumer price inflation in Nepal (mid-April 2019) and India (April 2019) stood at 4.4 percent and 2.9 percent, respectively. Such rate was 5.3 percent in Nepal compared to 4.6 percent in India a year ago.

"The increase in crop production, ease in the supply of goods, availability of electricity, subdued oil prices, and expectation of a modest rise of inflation in India will quell inflationary pressure in FY2019," read the Macroeconomic Update of the Asian Development Bank released in April, projecting the average annual inflation to edge up to 4.4 percent. 

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