Nepal’s official consumer inflation data show price hikes have moderated across the economy, dropping sharply to a 30-month low, but food prices remain persistently high.

According to Nepal Rastra Bank, the country’s central bank, the year-on-year consumer price inflation moderated to 4.82 percent in mid-March 2024, compared to 7.44 percent a year ago. Food and beverage inflation stood at 5.94 percent while the same for the non-food and service category was 3.95 percent in the review month.

Under the food and beverage category, the price index of the spices sub-category increased by 28.17 percent, vegetables by 14.07 percent, pulses and legumes by 11.22 percent, cereal grains and their products by 7.35 percent and milk products and eggs by 7.11 percent in the review month.

The price index of the ghee and oil sub-category decreased by 11.79 percent in the review month.

Under the non-food and services category, the year-on-year price index of the recreation and culture sub-category increased by 12.61 percent, miscellaneous goods and services by 10.67 percent and education by 7.31 percent.

While non-food inflation has dropped sharply, food items have become expensive.

Nepali traders attributed the food price hike to the upcoming general elections in India.

India is Nepal’s key trading partner and most food items are imported from the southern neighbour. Traders said that given Nepal’s dependency on India, any protectionist policy adopted by New Delhi has significant impact on Nepal’s market.

This year's elections—set to begin April 19—are for India's lower house of parliament, the Lok Sabha, which has 543 seats.

Amul Kaji Tuladhar, general secretary of the Nepal Retailers Association, blamed wholesalers for increasing commodity prices under the pretext of Indian elections.

“Despite having old stock, wholesalers are artificially increasing the prices. And this is reflected in retail prices,” he said. He said the government should conduct market inspections, particularly targeting big importers.

The price of rice has increased by Rs100 per bag (20 or 25 kg). The price of sugar, lentils legumes and edible oil has also increased in recent weeks.

“The wholesalers have a tendency of increasing food prices even over trivial reasons, and we have no option but to follow suit,” said Tuladhar.

The prices will come under control if there is market inspection, Tuladhar said.

According to retailers,the price of jeera masino rice has increased by Rs5 per kg, bringing it to Rs100 per kg, sugar by Rs10 to Rs110 per kg, mustard oil by Rs10 to Rs370 per litre, soybean and sunflower oil prices have increased by around Rs10 to Rs210 per litre, and moong lentil price has risen by Rs5 per kg, now costing Rs180 per kg.

According to the Department of Customs, Nepal imported 62,122 tonnes of rice worth Rs6.39 billion from India in the first eight months of the current fiscal year ended in mid-March.

The country imported 8,600 tonnes of paddy worth Rs432.21 million in the review period.

“The price of imported rice started to increase after the Holi festival, two weeks ago. This happened due to increased warehouse expenses in India,” said Vibhor Agrawal, a member of the Association of Nepalese Rice, Oil and Pulses Industries.

The retail price of a 25-kg bag of jeera masino rice has reached Rs2,450 in Nepal. It was around Rs2,300 three weeks ago.

“The outlook shows, rice prices will rise further,” said Agrawal.

The domestic mills and traders were selling jeera masino rice at Rs2,200 per 25-kg bag to retailers a few weeks ago, but now it has climbed to Rs2,275.

Agrawal said that the market is flooded with smuggled rice and this has put genuine traders in difficulty.

In view of its approaching elections, the Indian government has reduced the price of food, said Agrawal. Now, there is a price difference of Rs200 per bag between Nepal and India. “This price difference has fuelled smuggling of rice into Nepal from India.”

“We informed the Home Ministry about the rampant rice smuggling from India two weeks ago. But there has been no response,” said Agrawal.

Traders say India has imposed export bans on most commodities.

India, the world’s biggest exporter of vegetables, has unexpectedly extended its ban on onion exports indefinitely, just before its general elections, and this is set to increase prices in some international markets.

The ban was introduced in December 2023 and was due to expire on March 31.

On July 20 last year, India banned exports of non-basmati rice. And the following August, it imposed a 20 percent export duty on parboiled rice, causing rice prices to shoot up.

India will not remove export bans on rice, wheat, onion and sugar any time soon as the government’s priority is to cool domestic prices, Indian media reported.