The tango of inflation and soaring food prices

Anushka Nepal

Anushka Nepal

The tango of inflation and soaring food prices

The consumer price inflation in an import-reliant country like Nepal is also heavily influenced by transport cost, which in turn is determined by fuel prices

High inflation has squeezed the budgets of Nepali households. The year-on-year consumer price inflation was 7.87 percent in the 10th month of the fiscal year 2021/22 compared to 3.65 percent the same month a year ago, Nepal Rastra Bank data show. Prices of ghee and oil; fruits; milk products and eggs; and pulses and legumes rose by 24.86 percent, 12.61 percent, 11.30 percent, and 10.53 percent, respectively.

While the grocery list for each household varies, ApEx here considers 10 essential daily items in order to compare their prices in Kathmandu and New Delhi.  Of these items, only two—basmati long grain rice and ghee—are cheaper in Nepal than in India. 

Per kilo potato and wheat flour price, for instance, are Rs 12 dearer in Nepal than in India. The biggest price difference is on peas, at a staggering Rs 127. Prices of sugar, pulses, tomatoes and sunflower oil are also higher in Nepal.   

Nepal’s low agricultural production means most of these grocery items have to be imported from India, driving up their prices. The consumer price inflation in an import-reliant country like Nepal is also heavily influenced by transport cost, which in turn is determined by fuel prices. With oil prices skyrocketing due to the Russia-Ukraine war, imported goods have become costlier than ever. 

Rising trade deficit and import bills are not good for Nepal—and certainly not for its people who earn in a currency that is also fast depreciating against the dollar, the international benchmark. 

We should brace ourselves for long-haul inflation 

Bishal Chalise, economist 

Bishal Chalise

As we import most of our food items from India, higher prices are to be expected here. But there are other reasons for high inflation as well, like the Russia-Ukraine war and our low production and productivity. 

Because of the war, the price of petroleum products has gone up globally, which contributes to price inflation of goods. There is a fear of a possible food crisis, and countries with high agricultural production have started stocking up on food as a backup plan. 

The likes of India, Vietnam and China have significantly lowered export of food items and yet their production has not fluctuated.

But the scenario is different in Nepal. Even though we produce little and are heavily import-reliant, the government has no plans on curbing soaring inflation. Our monetary and other financial policies are ad hoc. We cannot drastically increase our production  as well. This lack of effort augurs a long inflationary phase in Nepali economy. 

Further, we do not have the capacity to use only clean energy and do away with petroleum products. We need fossil fuel for mobility, to transport goods, and to sustain our economy. But a petro-dependent economy is getting increasingly difficult to sustain, what with the global oil prices soaring due to the Russia-Ukraine war. 

Amid this unstable global climate and lack of preparation on the part of our government, we should brace ourselves for long-haul inflation. 

The best way to minimize the crisis is by controlling consumption. Only necessary items should be imported, while consumption should be monitored as well to prevent the wastage of imported goods. Or else, the crisis will get much worse.