More Nepalis expect inflation to increase in a year's time, according to a statistic released by the central bank.

Expectations about inflation among Nepali consumers over the next 12 months hit a new high of 12 percent, says the second quarter Inflation Expectation Survey Report of Nepal Rastra Bank.

The result shows that 12 percent of the people surveyed felt that inflation would increase over the next one-year period ending mid-January 2024.

The median expectation among respondents for average annual inflation over the next three months is 10 percent.

The central bank says it plans to keep inflation within 8 percent in the current fiscal year. But the government budget statement states that inflation will be kept below 6.5 percent.

The central bank report said that 84.6 percent of the respondents expected the price level to increase in the next three months while 92.3 percent of them expected the price level to increase over the next year.

The survey was conducted from January 8 to 14 among individual respondents from 60 market areas through field interviews, the central bank said. The results are based on responses from 2,010 individuals.

“Consumers are expecting high inflation in the next year,” said Prakash Kumar Shrestha, chief of the economic research department at the central bank. “This indicates that we need to take some policy measures to address rising inflation.”

The current rate of inflation is already higher than expected.

“On top of that, the additional rise will distort consumer confidence,” he said, adding that there was a need for an urgent policy to address inflation.

An inflation expectation survey is based on consumer feeling, especially a perception made by people based on goods that they purchase mostly.

“We have already issued a tight monetary policy to tackle inflation,” said Shrestha.

According to the report, the respondents are expecting price increases in food and its sub-groups fish, meat, milk, ghee and oil. Hotel and restaurant prices have increased compared to mid-October last year.

The share of respondents expecting price increases in non-food and services and real estate (housing) during the next three months has decreased slightly compared to mid-October 2022.

The Russia-Ukraine war and its impact on the supply chain, fluctuating fuel prices, and appreciation of the United States dollar against the Nepali rupee have resulted in a shortage of various commodities. The shortage has resulted in an increase in the price of food items like rice, flour, edible oil, and spices.

Inflation started rising from 4.24 percent in October averaging at 6.04 percent in the fiscal year 2021-22.

Since then it has been rising continuously, reaching 8.64 percent last September.

Inflation declined from 8.08 percent in November to 7.38 percent in December, which the central bank said was due to the base rate impact. When the inflation rate at the point chosen for comparison, or the base period, is high, the current inflation rate will show lower despite a rise in the price index, the central bank said.

"The budget and monetary policy have projected inflation to be controlled at 6.5 percent, but that seems impossible," said economist Raghubir Bista. “The country’s policies seem to have failed to tame rising inflation,” he said.

"Price stability is the first work of the monetary policy, but the hike in interest rates has increased inflation rather than control it," he said. “It has caused an imbalance in other economic indicators as well.”

The wage index is constant, but the continuous rise in market prices has hit the income and savings of the people.

"As 90 percent of the income of Nepalis is spent on consumption, rising inflation creates problems in capital formation, contributing to a liquidity crisis," Bista said.

"Inflation impacts the middle class and daily wage earners including people in the informal sector especially in urban areas," Bista said. "Increasing inflation makes these people unable to repay loans taken from banks and cooperatives."

On February 10, the central bank stated in its mid-term quarter review of the monetary policy that a rise in the price of petroleum products and depreciation of the Nepali rupee had increased the cost of imported goods, putting inflationary pressure on the consumer price.

Nepal Rastra Bank continued a tight monetary policy aimed at controlling credit expansion, fearing that easy availability of credit could again fuel imports leading to rapid depletion of foreign exchange reserves.

The central bank said in its mid-term review of the monetary policy that the existing direction of the monetary policy would be continued as a possible rise in imports could increase pressure on the external sector of the economy if import restriction measures are lifted.

“Our market is not completely competitive and fair; and for this, the government would have intervened in the market by supplying goods through Food Management and Trading Company and Salt Trading Corporation,” said Bista.