Inflation cooled down to 13-year low of 2.3 percent in August, as food prices dropped and non-food prices went up moderately. 

Consumer prices had last increased at this pace in July 2004. At that time, inflation had stood at 2 percent.

“The higher base price of the previous year contributed to the moderation of inflation in the review period,” says the latest Macroeconomic Report of the Nepal Rastra Bank (NRB), the central bank. Inflation stood at 8.6 percent in the same month a year ago.

Consumer prices decelerated in August after prices of food and beverages, which make a contribution of 43.9 percent to the consumer basket, dropped by 1 percent, shows the NRB report.

In August, prices of pulses and legumes had dropped by a whopping 23.3 percent, while vegetables had become cheaper by 11.7 percent. These items make a contribution of 7.4 percent to the consumer basket. Also, prices of spices had gone down by 3.5 percent in August, while fruit prices had decline by 1.4 percent. Fall in prices of these food products were able to offset 8.3 percent jump seen in prices of alcoholic beverages and 5.3 percent hike in prices of sugar and products made out of sugar, shows the NRB report.

It is not yet known whether food prices will continue to drop in the coming days, as torrential rain that triggered floods in the second week of August has wiped out Rs5.8 billion worth of farm products in 31 districts, mostly in the Tarai, the food basket of the country. This had led to surge in vegetable prices.

Statistics show that 140,464 hectares of standing crops of paddy, maize, pulses, banana and spices were affected by the flood, while 37,757 hectares of standing crops suffered severe damage. Likewise, fishes on 2,582 hectares were swept away.

“The torrential rains did cause losses of stock and hit agricultural infrastructure in most of the districts in the Tarai,” says the NRB report. “However, timely onset of monsoon, normal rainfall in subsequent period, improved supply of agricultural inputs and steps taken by the government are likely to offset the output loss initially assumed.”

In August, non-food inflation also decelerated to 4.9 percent from 8.1 percent a year ago, due to lower growth rate in prices of clothes, footwear, furniture and household equipment. Also, hike in housing and utilities costs was not as intense in the month, which helped non-food inflation to moderate, says the report.

Prices of clothes and footwear went up by 6.4 percent in August as against 11.2 percent in the same month a year ago. In the month, housing and utilities costs rose by 6.3 percent as against 9.7 percent a year ago, while prices of furniture and household equipment increased by 4.1 percent in August as against 8 percent in the same month a year ago.