Inflation was back in the double-digit zone in mid-May after having cooled to single digits in mid-April following a rise in house rentals and educational expenses, Nepal Rastra Bank (NRB) said.

Price increases reached 10 percent in mid-May, up from 9.7 percent in the previous month. Inflation has been on a downward trend since January when it hit a seven-year high of 12.1 percent as a result of the Indian blockade.

“The reversal in the inflation trend occurred on account of a rise in housing rents and education related expenses in the review month despite an improved supply of fuel and other consumables following the return of normalcy at the customs points on the southern border,” the central bank said in its macroeconomic report.

During the period mid-April to mid-May, schools admit new students with the start of the academic year. According to central bank statistics, price rises in the education sector stood at 3.4 percent while price rises in the housing sector reached 16.5 percent.

Inflation was expected to drop continuously following the end of the Indian embargo last September. After a long period of inflationary pressures driven by price rises in food items, dearer non-food items pushed up the rate in mid-May.

Prices of clothes and footwear, housing and utilities and alcoholic drinks increased by 17 percent, 16.4 percent and 15.9 percent respectively

Among food and beverage items, prices of pulses and legumes rose 23.4 percent while prices of vegetables swelled 20.1 percent during the review period.

In terms of geographical region, the Kathmandu Valley witnessed a relatively higher rate of inflation of 11.5 percent. The hilly, mountain and Tarai regions saw price rises of 11 percent, 9.1 percent and 8.6 percent respectively, according to NRB.  

As Nepal is heavily dependent on India for both food and non-food items, any change in inflation in the southern neighbour is immediately reflected here. However, this is not always the case because supply-related constraints can drive inflationary pressures in Nepal.

While Nepal reeled under double-digit inflation in mid-May, price rises in India were recorded at 5.8 percent. The inflation wedge, or the difference between the two rates, stood at 4.2 percent. A year ago, the wedge was narrower at 2.1 percent.

The rise in the inflation wedge between Nepal and India has been attributed to lingering impacts of last year’s earthquake and obstructions on the southern trade routes.

“However, the inflation differential is narrowing down on account of an improved supply situation in Nepal following the return of normalcy on the southern trade routes,” the central bank said.