Prices rise at faster pace in hilly region

- Post Report, Kathmandu

Oct 23, 2016-

Prices of consumer goods and services are rising at a faster pace in many parts of the hilly region than in the Kathmandu Valley, indicating ineffective market monitoring in semi-urban and rural areas of the country.

Inflation stood at 6.6 percent in the Valley—which also falls in the hilly region—in September, shows the latest macroeconomic report of Nepal Rastra Bank (NRB). But in the same month, consumer prices rose by 10.3 percent in other parts of the hilly region on an year-on-year basis, with prices of non-food items jumping 12.1 percent, while prices of food items rising 8.4 percent.

“This suggests that the law of demand and supply is working more effectively in the Valley than in other parts of the hilly region,” Nara Bahadur Thapa, chief of the Research Department at NRB, told the Post.

Usually, low supply coupled with high demand of goods and services raises prices, while high supply coupled with low demand prompts prices to fall. But it appears, “price stickiness”, or resistance of price to change despite change in supply situation, may have been playing a bigger role in many parts of the hilly region.

This is an indication that ineffective market monitoring that leads to artificial price hike is building unnecessary inflationary pressure in many parts of the hilly region.

Consumer prices had soared by as much as 12.1 percent on an average in the country after India imposed trade blockade, triggering a shortage of different commodities, including petroleum products and other essentials. But since the blockade was lifted in February, inflation has started moderating. 

In September, average inflation in the country stood at a 12-month low of 7.9 percent, shows the NRB report. “But the benefit of normalisation in supply situation, which helped prices to moderate, is yet to trickle down to many areas in the hilly region,” said Thapa.

Along with ineffective market monitoring, supply-side constraints also play a role in inflating prices. And since many areas in the hill are not connected by proper roads, cost of delivering goods goes up. 

But surprisingly, the NRB reports shows inflation standing at 7.5 percent in the mountainous region, where the terrain is even more difficult and some of the parts do not even have access to road networks.

“Consumer prices are rising at a slower pace in the mountains than in the hills because the government provides transport subsidy to deliver essential food items to the mountainous region. This was one of the reasons we found during our study,” said Thapa. Earlier, NRB’s Thapa had suggested the country maintain adequate buffer stock of food products to contain prices, as food items make up 43.9 percent of the consumer basket—based on which inflation is derived.

The government has currently directed Nepal Food Corporation (NFC), a state-owned company, to maintain national buffer stock of 25,000 tonnes of food.

As per the 14th Summit of the South Asian Association for Regional Cooperation (Saarc) held in Pakistan in 2007—which decided to create a Saarc Food Bank—Nepal should also maintain an additional buffer stock of 8,000 tonnes of food.

But NFC’s food stock is lower than what it should be maintaining. What is even more surprising is that a big chunk of food stock comprises rice and does not contain other essentials, like sugar and pulses.

Published: 23-10-2016 08:57

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