Consumer price index at the end of mid-February 2017 rose at the lowest pace in more than 12 years due improved supply and moderate Indian inflation.

Average prices went up by just 3.3 percent in mid-February, as food inflation went negative by 0.2 percent and non-food inflation moderated to 6.1 percent, according to the latest macroeconomic report of the Nepal Rastra Bank (NRB). 

The last time where inflation was down to this level was back in December 2004. “The base effect, improved supply and deceleration in Indian inflation were the underlying factors for a downward path of inflation in recent months,” says the NRB report. “However, increases in crude oil prices could pressure Indian inflation which is likely to affect the Nepalese inflation in the coming months.” Consumer prices soared by as much as 12.1 percent in January 2016 after India imposed a trade blockade lasting months, disrupting supplies of almost everything from petroleum products and raw materials to daily essentials. Inflation has, however, been easing since the blockade was lifted in February 2016.

In a net-importing country like Nepal, fluctuation in consumer prices in India directly affects prices here. Moreover, the decision taken by the Indian government on November 8 to pull IRs500 and IRs1,000 out of circulation has significantly reduced consumer demand, as people either don’t have much cash to make purchases or are holding back on spending.