Inflation Article

Comparative Analysis of Inflation in Nepal and India

Nepal Rastra Financial institution

Research Division

Baluwatar, Kathmandu

30 Nov 2011

Nepal Rastra Financial institution

Research Division

30 Nov 2011

Comparative Analysis of Inflation in Nepal and India

History: Year-on-Year regular monthly variation of pumpiing, both in Nepal and India, seemed to be higher than expected at present situation. Inflation in Nepal is largely troubled by rising meals price in the country, which is a global phenomenon also in the present framework. However , pumpiing in food component has come down to single digit after having a long time in October 2011. Non foodstuff inflation would go higher later on if the present exchange charge trend (especially USD exchange rate appreciation) still would go to upward course. Overall buyer price pumpiing in Nepal has been inspired by increasing prices of food and petroleum products and rising pumpiing India. Pumpiing data1 for the past few years (August 2007 to October 2011 of Nepal and Aug 2007 to July 2011 of India for the analysis of monthly annual variation) have been taken into consideration to get a review. Observations and suggestions extended by a report (IMF Country Report No . 11/319, November 2011- Nepal: Chosen Issues) of International Budgetary Fund (IMF) have also been referred. Consumer Value Inflation in Nepal: Total Inflation: Overall consumer value inflation was moderate between August 3 years ago and Mar 2008 having an approximate selection of 5 percent to six percent changes.  Pumpiing started to turn and reached to double-digit (10. one particular percent) in June 2008. Afterwards, overall inflation continued to be either in double digit (highest peak 13. 8 about January 2009) or higher aspect single number till as of yet within the review period. Food Price Inflation:  Few months (August 2007 – March 08 except in September) observed a single digit food selling price inflation starting from 6. 6th percent to 9. two percent. Remaining periods observed double digit pumpiing with a record of 21 years old. 5 percent rise in June 2009.  Thus, elevated food price has been among the decisive makes for preserving higher level inflation in Nepal. Non-food Price Inflation:  On the contrary, Non-food inflation showed a comfortable condition during the assessment period registering single number increment ranged from 2 . 6th percent to 9. 0 percent besides in August to December, 08. In order to get an ‘inflation trend' in Nepal, period plots of overall consumer price pumpiing and its main components have been completely presented in the following chart: 

1

Data Source: Nepal Rastra Traditional bank and Business office of the Financial Adviser, Ministry of Business and Sector, Government of India.

Graph - one particular Consumer Cost Inflation (change in %)

24 20

16

doze

8

5

0 III IV I actually II III IV I II III IV I actually II III IV My spouse and i II 2011 III 4 2007 2008 2009 2010

CPI_NEP_OVERALL CPI_NEP_FOOD CPI_NEP_NONFOOD

The time plots viewed in data – 1 (CPI_NEP is short for Consumer Selling price Inflation in Nepal) as well support previously mentioned discussions since food selling price inflation was always at higher level to overall pumpiing during the complete period used under assessment. On the contrary, nonfood inflation usually maintained decrease side compared to overall CPI changes. Inexpensive Price Pumpiing:  Total wholesale selling price inflation confirmed a combined trend in the review period. It was documented as low as some. 3 percent (February 2008) to up to 18. 9 percent (December 2009) inside the review period. Sub-components of WPI (agriculture commodities, domestic manufactured goods and brought in commodities) showed a parallel run at first until 2nd quarter of 2008 and periods following 2nd 1 / 4 of 2010 only. Rest of the periods, they had a visible deviations with the total WPI pumpiing.

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In order to have a look at traditional trend, time plots of the WPI and its principal components are showed in the next chart: Graph - two Wholesale Selling price Inflation (change in %) 40 40

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