Rising Inflationary Pressure in India and Implications for Nepal

India is facing mounting pressure on the prices of food items from the past few months. The consumer inflation has reached 7.35 percent in December 2019, a 65-month high since July 2014. Such inflation has risen steadily from 1.97 percent in January 2019 to 7.35 in December 2019.

 

 The main driver of consumer inflation in the recent months is increase in food prices especially vegetables. Average food inflation during the last three months is 9.3 percent. Such inflation in December 2019 has jumped to 12.2 percent.

The chart below shows the increase in prices by different sub-groups. It shows that in December 2019, vegetables, pulses, meat and fish recorded highest increase in prices compared to December 2018.

The price of vegetables seems to be the main driver of inflation in the recent months.  Increase in the price of vegetables in the last three months is above 25 percent.

 Main Drivers of Inflation 

The absolute increase in price does not have much significance in inflation. The share of household budget in that good also matters.
Since vegetables occupy about 7.5 percent in India's household consumption expenditure and its price has increased by about 60 percent, it has contributed more than 50 percent to the current higher inflation in India.

  Implications for Nepal 

• Since Nepal, imports food items from India, there will be pressure on Nepalese food inflation too.
• As Indian inflation is  one of the important determinant of Nepalese CPI, it will create inflationary pressure in Nepal through the rise in the prices of raw materials and consumer goods.

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