Inflation wedge between Ktm and rest of country widens

- Post Report, Kathmandu

Dec 31, 2017-

The difference between growth rate of consumer prices in the Kathmandu Valley and the rest of the country is quite wide, with the mountainous region witnessing price hike at the fastest pace. 

Inflation stood at 3.9 percent in the country in November, according to the latest report of the Nepal Rastra Bank (NRB). 

In the same month, consumer prices rose by 3.2 percent in the Valley and 5.4 percent in the mountainous region.

The sharp hike in prices of consumer goods and services in the mountainous region is the result of surge in consumer prices in Chandannath, Jumla, according to Prakash Kumar Shrestha, director of the Research Department at the NRB. “Prices in Chandannath rose following floods in July. Since then, they have not normalised,” said Shrestha. 

Chandannath is one of the five marketplaces, whose prices are taken into account to measure inflation of the mountainous region. 

The other four marketplaces are Barhabise, Bhimeshwor, Khalanga and Khandbari. 

The NRB currently collects prices from 60 marketplaces across the country to gauge the country’s inflation.

Until last fiscal year, consumer prices in the mountainous region used to rise at a slower pace than in hilly region. One of the reasons for this was transport subsidy provided by the government to supply essential food items to the region. 

“We hope the situation will revert once prices normalise at Chandannath,” said Shrestha. 

What is also surprising is wide difference in price hike in the Valley and the Tarai. Consumer price growth rate has always remained higher in the Tarai than in the Valley despite being the breadbasket of the country and supplier of a big chunk of food items to the Valley. 

The Tarai, located in the south, also borders India, which makes a contribution of over 60 percent to Nepal’s imports. So, most of the imported goods enter the Valley through the Tarai. Yet inflation in the Tarai stood at 3.7 percent in November, as against 3.2 percent in the Valley. 

“This indicates markets in the Tarai are not as competitive as those in the Valley,” said Shrestha.

As per the law of supply of demand, low supply coupled with high demand of goods and services raises prices, while high supply coupled with low demand prompts prices to fall. But, at times, “price stickiness”, or resistance of price to change despite change in supply situation, also tends to put pressure on prices. 

This could be corrected through effective market monitoring, which, according to NRB officials, may not be taking place in the Tarai. This is the same in hilly region, which saw consumer price hike of 4.7 percent in November.

Published: 31-12-2017 08:18

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