Nepali customers are irritated that food prices are still higher than inflation.
The cost of vegetables and legumes has increased, contributing to double-digit food inflation. The central bank of Nepal reports that food prices rose to 9.99 percent in mid-December, which helped to raise overall consumer price inflation to 6.05 percent from 4.95 percent a year earlier. Economists caution that rising food prices will worsen poverty in addition to having an effect on the economy.
According to the data, vegetable inflation increased significantly, rising 43.05 percent in mid-December over the previous year. From September 26 to 28, extremely heavy rainfall hit Nepal, especially Kathmandu and nearby regions, causing devastating flash floods. These floods disrupted road networks to the Capital for months, severely affecting supply chains and exponentially raising food prices.
Nepal Rastra Bank’s data shows that the price index of pulses and legumes increased by 10.66 percent, cereal grains and their products by 9.7 percent, and ghee and oil by 9.39 percent in mid-December, reflecting the first five months of the current fiscal year. “The rise in food prices will impact poor people,” said Nara Bahadur Thapa, former executive director of the central bank. “There are risks that food inflation will remain high due to a winter drought that may result in low crop production.”
Thapa added that the appreciation of the US dollar and the economic slowdown would further pressure import-driven countries like Nepal. On Thursday, the dollar was traded at Rs138.49. “When we import goods, we also bring in inflation,” he said. A strong dollar triggers inflation in a country like Nepal, which is highly dependent on imports and has low domestic production. The maximum impact is seen in petroleum products, which Nepal imports in their entirety, and chemical fertilisers.
Ironically, vegetable inflation has crossed 40 percent, but farmers are not benefitting. “As usual, consumers pay high prices,” Thapa said. Food inflation will hit the urban poor hardest, as their income often relies on daily wages. “Inflation will erode people’s purchasing power.” Economists highlight Nepal’s vulnerability to food insecurity due to climate change, low agricultural output, and frequent food export bans imposed by India on items like rice, wheat, onions, and sugar.
“Whenever India bans exports of key food items, prices immediately increase in Nepal,” Thapa said. “The performance of supply utilities like Food Trading and Management Company and Salt Trading is weak.” Market insiders say that if the government’s presence in the market weakens amid a slowed economy and strengthening US dollar, compounded by the current sense of political instability, inflation will likely remain high or even accelerate in the coming months.
Economists warn that lacking confidence could reduce investment and production, compounding supply-side inflationary pressures. “This time, the rise in inflation is due to a weak government and the lack of effective market monitoring,” said Puskar Bajracharya, an economist. “With the rumours of a change in government, inflation could cross 7-8 percent as the government focuses on power games rather than addressing inflation,” he added.
If inflation increases without supporting economic growth and market demand, it can be dangerous for the economy, negatively impacting national development and economic growth. “This is not a good sign for our economy,” Bajracharya noted. Rising inflation means people’s purchasing power and consumption will decline as the market has not fully recovered. He said Nepal’s economy has slowed over the past two to three years, and no concrete economic policy has been implemented to boost growth.
Under the non-food and services category, the price index of miscellaneous goods and services increased by 7.98 percent, alcoholic drinks by 7.01 percent, clothes and footwear by 6.75 percent, and furnishings and household equipment by 5.29 percent.
Source: Here
