Consumer prices rose by an average of 3.4 percent in September, as vegetables became expensive after floods hit the country’s southern belt in mid-August. The price hike seen in the month was higher than 2.3 percent in August.

The pace at which consumer prices rose in September, however, was much slower than in the same month a year ago when inflation stood at 7.9 percent, shows the latest Macroeconomic Report of the Nepal Rastra Bank (NRB), the central bank.

Overall prices went up in September after vegetables became expensive by 8.9 percent following floods and inundation of Tarai lands in mid-August. Vegetables make a contribution of 5.5 percent to the consumer basket.

Despite a hike in prices of green produce, food prices went up by a moderate 1.8 percent in September, as prices of pulses and legumes plunged by 23.7 percent and spices became cheaper by 4.2 percent. 

Among other food products, prices of cereal grains and their products went up by 0.2 percent, meat and fish rose by 3.3 percent, and milk products and eggs increased by 4.5 percent, shows the NRB report.

Also, prices of non-food items jumped by 4.7 percent in September, as prices of clothes and footwear went up by 5.6 percent and housing and utilities bills soared by 5.9 percent.

Inflation has been moderating in Nepal since November 2016 and has stood at less than 5 percent, providing big relief to consumers who were used to seeing double-digit consumer price hike.

One of the reasons for this is India’s decision to fix inflation target of 4 percent with upper tolerance level of 6 percent and lower limit of 2 percent. This means India will not allow inflation to exceed 6 percent or drop below 2 percent. 

This Indian central bank policy is expected to help Nepal because one of the factors that drives up consumer prices here is price hike in India, as the country imports almost 65 percent of goods from the southern neighbour. 

Inflation stood at 3.3 percent in India in September.

However, Nepal does not always enjoy the benefits of lower price in India. In January 2016, for instance, inflation stood at 5.7 percent in India, while prices had gone up by an average of 12.1 percent in Nepal.

The inflation wedge between Nepal and India, according to the NRB, had widened at that time due to supply-side constraints, such as lingering impact of earthquakes of April and May, 2015, unrest in southern plains and disturbances on trade routes in southern parts of the country.

At that time, protests in the Tarai and blockade had affected movement of cargo vehicles and completely halted imports of goods, crippling the country’s supply system.

Also, black marketing thrived at that time, which jacked up prices of most of the essentials, building inflationary pressure.