Inflation at 40- month high of 11.6%

Kathmandu January 19- Prices of consumer goods surged by an average of 11.6 % in December, the highest in the last 40 months, as prolonged protests in the Tarai and supply disruptions along Nepal-India border points made goods and services expensive.

The last time prices had jumped to this level was in August 2012, when inflation stood at 11.9 %. Since then prices had started coming down. And between January 2014 and October 2015, Nepal even managed to limit inflation to single digit.

However, protests in the Tarai and blockade on Nepal-India border points which choked supply of goods prompted prices to jump by 10.4 per cent in November. December witnessed similar trend.

In December, prices of food and beverage items surged by an average of 14.8 per cent, while prices of non-food items and services jumped by 9.1 per cent, shows Nepal Rastra Bank’s Macroeconomic Report published on Monday.

Food and beverage prices went up by over 10 %, as items like pulses and legumes became expensive by a startling 48.9 %, while ghee and cooking oil became costlier by a whopping 42.3 %.

Some of the non-food items also saw double-digit hike in prices in December.

Prices of clothes and footwear, for instance, surged by 14.6 %; education fees jumped by 12.5 %; and housing and utilities cost went up by 11.4 %.

One of the reasons that push up consumer prices in the country is supply-side constraint.

This includes transport bottlenecks, lack of raw materials, which leads to higher imports of finished goods, inadequate supply of electricity and key inputs to ramp up production, and protests.

Since Nepal is a land-locked country, which imports almost all of the goods from abroad, mostly India, supply-side constraints, resulting from Tarai protests and border blockade, effectively reduced flow of petroleum and food products, raw materials and other essentials coming into the country.

The impact of supply disruption was greatly felt in the Kathmandu Valley, where consumer prices surged by 13.2 per cent in December, shows the NRB report.

The Tarai, on the other hand, saw prices rising at a relatively slower pace of 10.2 per cent.

But the recent relaxation of obstruction on most of the trade routes is being seen in positive light here. “This is likely to break the spiral of price hike witnessed since mid-September,” says the NRB report.

While supply-side constraints are making goods expensive here, inflationary pressure being built in India is also pushing up prices in Nepal.

Inflation in India stood at 15-month high of 5.6 % in December. Since over 60 % of the goods consumed by the country are imported from India, the impact of price hike in southern neighbour is automatically passed on to Nepal.

However, what is noticeable is widening inflation wedge between Nepal and India.

In December 2014, for instance, inflation in Nepal stood at 7 % compared with 4.9 % in India, reflecting inflation wedge of 2.1 %.

This December, inflation wedge widened to six %.

“The widening inflation wedge was on account of lingering impact of earthquakes of April and May, unrest in southern plains and the recent disturbances on trade routes in southern parts of the country,” says the NRB report. Source: THT