As fuel prices rise, Nepalis buffeted by stagnant incomes and high inflationThe Department of Transport Management has allowed transport entrepreneurs to jack up bus fares and freight charges on inter-provincial routes by 10 to 14 percent.
Milan BK has been deeply worried since hearing that transport fares would be raised by up to 14 percent from Sunday.
The last fare hike was made in July, and with the planned increase, transportation costs will see the steepest annual growth.
BK has cause to worry as his household finances are being strained to the limit. The country's economy has been strangled by a high inflation rate, slowing down job growth and eating into disposable income. Consumers are having to manage with the same wages for the last two years.
In less than a year, the Sher Bahadur Deuba administration has decided to pass on the burden of higher fuel prices to Nepali consumers, already staggering under economic stress after the harrowing pandemic.
The Department of Transport Management has allowed transport entrepreneurs to jack up bus fares and freight charges on inter-provincial routes by 10 to 14 percent.
“The new rates adjusted as per the increase in fuel prices will come into effect from Sunday,” said Namaraj Ghimire, director general at the department. “The new ticket prices for long routes will be published on Sunday.”
A committee was formed to review the fares. Ghimire says the fares were computed on the basis of the rise in fuel costs over the past few months. He said there would be no change in local bus and taxi fares.
In a new move, the government has decided to implement the auto pricing mechanism on transport fares. Carriers will be allowed to jack up the fuel surcharge if diesel prices rise by more than 5 percent.
The auto pricing also means that if fuel prices drop, transport entrepreneurs will have to slash the fuel surcharge accordingly.
“The automatic pricing mechanism, which is being implemented in Nepal for the first time, will start from April 3,” said Ghimire. Currently, this mechanism is implemented in the aviation sector. Airlines are permitted to adjust the fuel surcharge when fuel prices increase by more than Rs4 per litre.
According to Nepal Oil Corporation, the price of diesel swelled by 36.63 percent to Rs138 per litre in the past year. The state-owned oil monopoly has revised the price of diesel 18 times in the last 12 months.
The higher cost of diesel is reflected in the market in the form of inflation. A rise in the price of petrol has nothing to do with the consumer price index, according to experts.
Last July, the Department of Transport Management allowed transport entrepreneurs to jack up bus fares on inter-provincial routes by a sharp 28 percent.
Cargo carriers serving routes in the Tarai and hills have been permitted to hike freight charges by 26 and 20 percent, respectively. All public transport and cargo fares are regulated in Nepal.
With these two hikes combined, passenger and cargo fares will see a jump of more than 40 percent in the eight months since the Deuba administration assumed office.
This is enough to push inflation into double digits at a time when the country will be holding two crucial elections this year, said consumer rights activists.
"A hike in transportation cost means an imminent hike in all essential food items like rice, edible oil, lentils and legumes, vegetables and meat products," said Madhav Timalsina, president of the Consumer Rights Investigation Forum.
“It will impact the supply chain and support inflation on overall consumer goods. The higher price will weigh on the consumer's pocket, making it harder to pay for meals,” Timalsina said.
"Consumer prices of many goods are already high, and with the local election nearing, it will create further price pressure, making life hard for consumers whose income has already been hit by the Covid-19 pandemic."
BK, 39, works for a surgical firm in Tripureshwar. He has been watching prices rise astonishingly. "Edible oil costs more than Rs250 per litre, a kg of tomato costs more than Rs120, the prices of rice and legumes have been increasing too,” he said.
“I am wondering how I will manage my home expenses with my existing income which is unlikely to grow in the near future.”
A marked rise in oil prices has contributed to an increase in inflation as transport costs will raise the price of goods heavily. Shipping costs are a key component of food and non-food prices in countries like Nepal.
The rise in transportation and labour costs has pushed up the price of vegetables by 50-60 percent, both imported and locally produced, traders said.
Transportation and labour charges have swelled by 30 percent each in the past two months, they said. Clothes have become dearer by almost 50 percent compared to pre-pandemic times.
Economist Govinda Nepal said that consumers have been at the receiving end all the time.
“If transport fares increase by 10 percent, traders will increase the price of goods by more than that on the pretext of increased costs,” he said. “As Nepalis spend a large chunk of their income on food, inflation will definitely prevent them from saving,” he said.
High inflation is also hurting economic growth as it prevents investors from investing.
“The government should temporarily subsidise fuel by reducing taxes when prices reach a level beyond market control,” Nepal said.
Nepal said that inflation on the prices of major consumable goods had already reached double digits even though it is not reflected in the central bank report.
As there is no government inspection in the market, opportunist traders have high chances to benefit from the situation by cartelling, hoarding and increasing prices on their own, Timalsina said.
According to the Nepal Rastra Bank, transportation inflation increased by 15.87 percent year-on-year in the first seven months of the current fiscal year ended mid-February.
Year-on-year consumer price inflation stood at 5.97 percent during the review period compared to 2.70 percent a year ago.
“With the limited income to manage my home, with no savings, I have to cut back on my medical expenses,” said BK, “Inflation is so high that it has eaten all my savings. If my family members fall sick, I do not have enough savings for their treatment.”