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Kathmandu Wednesday September 05, 2001 Bhadra 20, 2058.
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Inflation rate low for second straight year
Post Report
KATHMANDU, Sept 4 - Compounded by a healthy growth rate, Nepalese economy
continued to enjoy a low inflation rate for the second straight year mainly due to
dwindling food prices, despite surge in the prices of the non-food items and service
sector.
According to the price statistics complied by Nepal Rastra Bank, during the
last fiscal year, the National Urban Price Index (NUPI), with 1995/96 as the base year,
recorded a low inflation rate of 2.4 per cent against the budgetary target of 5 per cent.
During the period, food and beverages, which command lion’s share of
53.20 per cent in the NUPI, registered a deflation of 2.3 per cent whereas in the previous
year the group had registered a marginal price rise of 0.4 per cent.
Of the major components of the group, grains and cereals products registered
a double-digit deflation of 13.7 per cent against the inflation of 8.6 per cent of the
previous year. Since the grains and beverages alone hold 18 per cent weight in the NUPI,
any decline in the price of grains and cereals products simply drag down the whole index
by suppressing price increments of other items with low weight.
The dwindling paddy price caused by the combined effects of bumper domestic
production and the inflow of Indian rice played the lead role in the decline of the prices
of grains and cereals group, hitting the only reliable income source of majority of the
population. Despite skyrocketing fuel price last year, the average prices of rice and rice
products during the period tumbled by about 15 per cent whereas the price rose by 9.7 per
cent the previous year.
The prices of sugar and sugar-related products surged by 11.5 per cent, the
highest price rise of the group followed by price rise of spices, which was went up by 8.4
per cent. Similarly, restaurant meals, pulses and milk and milk products prices increased
by 8, 2.4 and 5.7 per cent respectively.
However, despite the surge in fuel prices and other overhead expenditures,
prices of oil and ghee, surprisingly, continued to decline. Its prices, during last year
slumped about 5 per cent while it plunged by over 22 per cent the previous year.
Similarly, the non-food and services group, which has 46.80 per cent weight
in the NUPI, continued to witness a little more higher growth rate of 8.1 per cent
compared to the 7.1 per cent growth rate of the previous year. Propelled by fuel price
hike, housing - the largest weight holder of the group - registered a double-digit growth
of almost 12 per cent.
However, education, reading and recreation registered the highest price rise
of 14 per cent in the non-food group, which went up by almost 10 per cent the previous
year.
Similarly, prices of medical and personal care also rose by 5.7 per cent
albeit, a little less than the increment witnessed during the previous year. In the like
manner, clothes, clothing and sewing services, transport and communications and tobacco
and related products registered 2.2, 8.1 and 1.8 per cent respectively.
Though, the low inflation rate has come as the sweet music for the monetary
authority, it is equally challenging to keep the rate within the budgetary target of 5 per
cent for the current year. Initial indications suggest that the domestic monsoon
agriculture production might be hurt due mainly to less-than-expected rainfall,
particularly in the eastern Terai this year. The inadequate rainfall for the monsoon crops
has already begun affecting food prices. If the food production shrinks, it will
definitely shoot up the inflation rate.
Another worrisome factor is the soaring Indian inflation. Since the Indian
inflation rate, which directly influences the Nepalese inflation rate, is already above
five per cent mark.
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