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Kathmandu Wednesday May 30, 2001 Jestha 17, 2058.
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‘Shall
we cheer low inflation?’
Post Report
KATHMNDU, May 29 -Achieving a healthy economic growth
accompanied by low inflation rate is the prime objective of any modern economy and this is
what Nepalese economy is likely to enjoy the current fiscal year. The overall inflation
rate during the first nine months of the current fiscal year remained at 2.2 per cent, as
against 3.4 per cent observed during the like period last year.
According to the latest compilation by Nepal Rastra Bank,
the inflation rate for food and beverage group registered a negative growth rate of 1.7
per cent while the same for non-food and services group was 6.7 per cent. Despite high
price rise in the non-food group, the negative growth of food and beverage group, which
commands 53.20 weightage in the overall national urban consumer price index played crucial
role the keep the aggregate inflation rate at the ebb.
The tumbling price of grain and cereal products that bears
a weightage of 18 per cent in the food and beverage group played the leading role in
dragging down the index. The price of rice, which largely dominates the group, recorded a
remarkable plunge of over 15 per cent item whereas such plunge during same period last
year was just 1 per cent.
The present low mark inflation rate is neither a healthy
one nor as desired by the economy since it has been achieved at the cost of slumping
incomes of the farmers, which provides livelihood for around 90 percent total population.
In Nepal, good harvest of paddy, which holds 53 per cent weightage in the total
agricultural production, is the most determining factor income and saving of the majority
rural families.
Experts too believe that huge dive in the paddy price is
the main cause that has pulled down the inflation rate. "Paddy price has shrunk in
the recent months and uninterrupted food supply largely helped to keep the inflation rate
at the lower mark," Rita Pant, Director of Nepal Rastra Bank said.
Since the price of rice has tumbled to a record level of
almost 20 per cent in the Terai, from where majority of the paddy production comes, the
income and consumption of the rural people too has gone down remarkably. The sliding
demand of fertilizers in the Terai and the hilly region is one such concrete proof.
This has completed dented the hope that bumper agricultural
production witnessed this year would prop up the purchasing capability of rural peasants
generating demand for industrial goods and services and, thereby, creating positive impact
on curing poverty and unemployment.
Similarly, among the other major players of the food and
beverage group, the price of vegetable and fruits sprouted by almost 8 per cent, while
restaurant meal swelled by 9.4 per cent.
In the same way, cost of housing, which holds the largest
weightage in the non-food and services group, registered a growth of 7.6 per cent against
9.9 per cent recorded during the corresponding period last year. Such growth rate, during
the review period was highest in the hilly region and lowest in the Terai. A mark up of
11.8 per cent in fuel, light and water is the principal cause for such growth. The price
rise of cloth, clothing and sewing services remained at 3.2 per cent while the cost of
medical and personal care surged by 5.3 per cent. Education, reading and recreation posted
the highest price rise of 14.4 per cent in the non-food group while the price of transport
and communication soared by 8.1 per cent.
Though NRB officials seem confident that the domestic rate
of inflation for the current fiscal year would be contained within 3 per cent - less than
the budgetary target of 5 per cent - it would be difficult to enjoy similar low inflation
rate in the coming year due to a possible decline in cereal food production.
Earlier indications have revealed that farmers are loosing
their interest in commercial paddy cultivation mainly due to the record-level plunge of
paddy price, making them unable to recover even the cost of production. Since the summer
paddy cultivation in some part of the Terai region has declined by more than 40 per cent
and a good chunk of the paddy produced last year is still unsold, peasants surely would
not be much encouraged towards cereal food cultivation in the coming season. In effect, it
will, hit production and mark up the rate of inflation.
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