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Chandan Sapkota
2013-01-22
@csapkota
Causes of Inflation
Policy Implications Inflation Outlook
2013-01-22 @csapkota 2
Inflation in Nepal
20 15
10
FY2001
FY2002
FY2003
FY2004
FY2005
FY2006
FY2007
FY2008
FY2009
FY2010
FY2011
FY2012
FY2013
-5 Overall inflation Food & bevereges inflation Non food & services inflation
Overall inflation hovering around 10% Food inflation high since FY2006 Non-food inflation also increasing (depreciation of rupee)
2013-01-22 @csapkota 3
Recent Development
14 12 10 8 6 4 2 0 Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul 14 12 10 8
Overall inflation
16 14 12 10 8 6 4 2
Food inflation
0
Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun FY2012 FY2013 FY2014 Jul
Non-food inflation
FY2012
FY2013
FY2014
Overall inflation creeping up Food inflation rising fast Non-food inflation moderating
4
2 0 Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun FY2012 FY2013 FY2014 Jul
2013-01-22
@csapkota
Causes of Inflation
Pegged Nepali rupee to Indian rupee
Effectiveness of monetary tools to tame rising prices? M2 growth and inflation weakly correlated
Short-run impact on certain sectors
Adjustment of administered fuel prices Adjustment of public and private sector wages Supply-side constraints
Severity of power outages Transport bottlenecks Market distortions (middlemen, syndicates, cartels)
2013-01-22
@csapkota
NEP-CPI
IND-WPI
Inflation in India and international oil price movements account for one-third of the variability in Nepals inflation (IMF 2011)
2013-01-22 @csapkota 6
Effect of changes in NEER: Lag of about three months Monetary responsiveness temporary and fades out quickly
2013-01-22
@csapkota
Policy Implications
Addressing non-monetary factors/Supply-side constraints
Fiscal policy: Prudent public expenditure Boosting agriculture production/productivity
Food price inflation is more volatile than non-food price inflation
2013-01-22
@csapkota
Inflation Outlook
Forecast for FY2014: ??%
Wage pressures
Public and private sector wages up
11 10 9.9
9.6
10
9.6
Continued depreciation of Nepali rupee Persistent supply-side constraints (Good agriculture harvest will help lower pressures)
2013-01-22
8.3
@csapkota