Inflation did not hit double digits in July as expected, but economists warn massive campaign spending by political parties in the upcoming election could push prices higher.
Government spending during the election will also inject money into the economy.
Inflation in Nepal was recorded at 8.08% in July at the end of the fiscal year, double the figure of last year. Luckily, the price hike isn’t double digits, but it’s crushing consumers, economists say.
“The official inflation rate, however, does not even fully capture the gravity of the situation,” said economist Bishwambher Pyakuryal.
Nawal Kishor Sah, who runs a clothes shop in Nayabazaar, Kirtipur, says the official figure is underestimated. “The cost of living is so high. Prices for rice, lentils, vegetables, fruit, gasoline and rent have skyrocketed,” he told the Post.
“Children’s education, health check bills and room rent are now out of reach for many people in Kathmandu,” said Sah, 31, who lives in a rented apartment with her family of eight. .
Since the pandemic, Sah has taken out loans to feed her family and her debt has piled up. “Interest rates on loans are also rising,” Sah said.
According to the Nepal Rastra Bank, consumer price inflation doubled in July due to higher fuel and food prices. Supply chain disruptions caused by the Russian-Ukrainian war and the weakening of the Nepalese rupee against the US dollar also pushed prices higher.
Average annual inflation of 6.32% is only slightly above the government’s projection, but it is a four-year high.
According to the central bank, average annual consumer price inflation for food and beverages reached 5.69% in 2021-22, compared to 5% in 2020-21.
The price of ghee and oil increased by 26.13%, legumes and legumes became more expensive by 9.92%, and the price of tobacco and alcoholic beverages increased by 8.57%.
In the non-food and services category, the price of transport increased by 15.82%, that of education by 8.78%, that of furniture and household equipment by 7.09% and that of leisure by 6.68%.
“The election campaign has started,” Pyakuryal said. “The campaign will increase the flow of money to the market and increase government spending, which will make everything more expensive.”
Nepal has scheduled two elections – federal and provincial – for November 20.
The Inflation Expectations Survey Report released recently by the Nepal Rastra Bank indicates that 94.7% of respondents expected prices to rise by 14% in the next three months.
Pyakuryal doubts that the government’s official inflation rate is below 10%.
“None of the consumers think inflation is in the single digits,” he said.
As low- and middle-income people will be hardest hit by rising inflation, economists say more people will be dragged below the poverty line as they have begun to cut consumption as incomes cannot keep up market prices.
Government policy has also failed to support those hard hit by steadily rising market prices.
Despite a reduction in the price of petroleum products – at least three times in two months – Nepal’s oil monopoly has no immediate plans to reduce fuel prices.
The Nepal Oil Corporation says that its losses and debts to the Indian Oil Corporation, its supplier, have accumulated and that it is impossible to reduce fuel prices until the debts are settled.
The company has raised the price of petrol 13 times in the last year from Rs129 to Rs181 per litre. Diesel and kerosene prices have risen from Rs112 to Rs172 per litre.
According to “The War in Ukraine and Its Effects on Maritime Trade Logistics,” a report released by the United Nations Conference on Trade and Development in July, lower-middle-income countries could experience a further increase in 4.2% of consumer food prices among the four economies – high income, upper middle income, lower middle income and low income.
Lower-middle-income economies, including Nepal, could experience rising food prices as dry bulk shipping charges have risen sharply, driving up their food import costs , according to the report.
Economist Keshav Acharya says that despite a fall in fuel prices around the world, it does not appear to be falling in Nepal.
“It will certainly increase the cost of production and make domestic products less competitive,” he said. “The government itself is causing inflation to rise,” Pyakuryal said.
Festival season has started, but consumer confidence is low.
“As the government has failed miserably to control inflation, this will trickle down to economic growth as people will hold back spending,” Pyakuryal said.
The government should open fair-price stores by coordinating with the private sector, economists say.
Experts believe that persistent drought in many districts and broken government promises to provide chemical fertilizers to farmers will complicate matters in the coming months.
Farmers expect a significant drop in their harvests as they have not been able to obtain chemical fertilizers. Food prices are expected to rise
High inflation has led to price contraction, which economists say is a business strategy of reducing pack size to reduce quantity to avoid having to raise prices. Manufacturers give less for the same price – which people hardly notice – to run the business.
The World Food Program says that due to rising food prices during the period, the cost of the food basket – rice, wheat flour and some fruits – continued to rise, while the prices of pulses , soybean oil and some vegetables fell in July.
Yet the cost of the food basket was 11% higher in July 2022 than in April 2022.
“Inflation is rising and rising, but the government seems less concerned with controlling it,” Sah said. “Rising costs could ruin our upcoming festival plans.”