Inflation may continue into next year, central bank saysInflation was recorded at 8.5 percent in October 2022 compared to 4.24 percent in the same month last year, according to Nepal Rastra Bank.
Inflation is showing no signs of letting up, and Nepal Rastra Bank says it's only going to get worse.
The central bank stated in its first quarter review of the monetary policy that higher prices may continue into the months ahead.
“Inflation may reach the highest single digit and last for around six months,” Prakash Kumar Shrestha, chief of the economic research department at the central bank, told the Post.
The cost of food, fuel and transportation has been on a rising trend since February when Russia lunged into Ukraine. The war drove up energy prices steeply. And expensive oil resulted in higher input costs, mainly because of high-priced transportation.
For an import-driven economy like Nepal, the appreciation of the United States dollar played a key role in increasing the cost of goods.
Inflation was recorded at 8.5 percent in October 2022 compared to 4.24 percent in October 2021, according to Nepal Rastra Bank.
It surged to 6.04 percent in November 2021 and to 7.11 percent in December 2021.
Price rises dropped to 5.65 percent in January 2022 before taking off again. Observing external and internal economic factors, price pressure will remain for some time, the central bank said.
The Nepali rupee is currently trading at 131 per US dollar. A strong greenback means pain for Nepal because imports cost more in rupees.
"Despite a decline in crude oil prices in the international market, fuel prices in the domestic market have not come down accordingly," said Shrestha.
“The dollar is strengthening. The increased consumption demand triggered by two back-to-back elections has led to inflationary pressure,” Shrestha said.
According to economists, the government has not shown any interest in controlling inflation, and the subject wasn't even mentioned in the election manifesto of any political party.
“If Nepal Oil Corporation slashes gasoline prices in line with declining crude oil rates, it will cool down inflation,” Shrestha said. “Everyone knows that cheaper fuel will bring down transportation and factory input costs which will be reflected in retail prices,'' he said.
The state-owned oil monopoly continues to charge high prices even when the cost of oil on the international market has tumbled. Costly fuel has added to the hardships of Nepalis struggling under high inflation.
The oil company has been stating that it cannot slash prices because of past massive losses and the need to manage supply efficiently.
The corporation’s debts currently stand at Rs29.11 billion. A stronger dollar has made import fuel more expensive, Nepal Oil said in a statement.
The price of petrol swelled by 28.17 percent to Rs181 per litre in the past year, while diesel and kerosene prices rose by 36.51 percent to Rs178 per litre.
The price of LPG or cooking gas increased by 19.44 percent to Rs1,800 per cylinder in the same period.
"In India, inflation is estimated to have fallen to 6 percent from 7 percent," Shrestha said. “The ups and downs in inflation in India are instantly seen in Nepal’s market due to the open border,” Shrestha said.
Consumer rights activists say that the actual inflation rate the people are experiencing has not been reflected in the government’s calculations.
Inflation continued to accelerate driven by transportation, edible oil and housing prices.
Economist Jagdish Chandra Pokhrel says rising inflation for months has been putting pressure on the overall economy, with a reduction in production, exports and foreign direct investment.
“It’s been almost a year, but inflation has not cooled down. That’s not good for the country’s economy,” Pokhrel said.
“A sustained rise in prices of goods and stagnant incomes creates hardships for the people,” he said. “The government, however, is least bothered.”
There is inflationary pressure globally due to the Russia-Ukraine war that disrupted the supply chain and raised food, non-food and fuel prices.
“For a poor country, it’s pain,” said Pokhrel.
The tightened monetary policy will be continued for some time, the central bank said.
According to the International Monetary Fund, average inflation in Nepal may reach 6.3 percent in 2022 and increase to 7.7 percent in 2023.
The Asian Development Bank has downgraded Nepal’s growth forecast for the current fiscal year as the economy takes a beating from high inflation, slowing trade and monetary tightening.
The Manila-based bank says Nepal’s economy is estimated to expand by 4.7 percent in the fiscal year 2022-23, down from an estimated 5.8 percent in the last fiscal year.