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Inflation cools down to 3.8 percent


Kathmandu, January 17, 2017: Inflation significantly decelerated to 3.8 percent in mid-December last year from 11.6 percent in the corresponding period of the last Fiscal Year 2015/16.

The inflation, as measured in consumer price index, is continuously decelerating since mid-June 2016 amid improvement in supply system in recent months following a double-digit growth in the latter half of the last fiscal year.

Releasing ‘Current Macroeconomic and Financial Situation of Nepal based on five months data 2016/17’ on Monday, the Nepal Rastra Bank (NRB) said that the rate of price rises on year-on-year basis is dropping rapidly since mid-June this year. The NRB has attributed a number of factors, including the normalization of supply system, to the slowdown in price rise.

“The base effect, improved supply situation and deceleration in Indian inflation are the underlying factors for low inflation in recent months,” reads the monthly periodic report of the central bank.

While inflation has cooled down to merely 3.8 percent in the five months of the current fiscal year, analysts say that the price is still at a higher end given that base price was very high due to shortage of goods in the blockade period which had driven up prices. The earthquakes in 2015 and unofficial blockade imposed by India in the last week of September 2015, which lasted till the first week of February last year, had created shortages of essential supplies. Earlier last year during this period, the price was rising in such an alarming rate that the central bank even warned that there could be stagflation if the current Tarai turmoil and undeclared economic blockade continued for long.

Stagflation refers to a situation of contraction of economic growth coupled with rise in inflation and unemployment.

Food inflation dropped to 0.6 percent in mid-December 2016, compared to 14.8 percent in the corresponding month of 2015. The non-food inflation also moderated to 6.5 percent during the review period from 9.1 percent, according to the report. “The decline in transportation and communication prices contributed to moderation in non-food inflation in the review period,” it added.

The hilly region witnessed a relatively higher rate of inflation of 5.6 percent followed by Tarai and Mountain, both at 3.7 percent, and the Kathmandu Valley at 2.5 percent in the review period.

The inflation wedge between Nepal and India has narrowed down significantly in recent months, according to the report. The year on year consumer price inflation was slightly lower at 3.4 percent in India compared to 3.8 percent in Nepal in December 2016, showing an inflation wedge of 0.4 percent. Such inflation was 5.6 percent in India and 11.6 percent in Nepal reflecting a wider inflation differential of 6 percent in the corresponding period of the previous year.