Annual inflation in Nepal has declined to a 12-year low of 4.5 percent in fiscal year 2016-17 due to a moderate rise in costs of food and non-food items.

The inflation figure is lower than the Nepal Rastra Bank’s (NRB) estimate of 7.5 percent. This is the third time NRB had beaten its own inflation target inflation ever since it launched annual monetary policy in 2002-03. Prior to this, it was in 2003-04 and 2006-07.

The latest Macroeconomic Report of the Nepal Rastra Bank (NRB) informed that annual inflation of the previous fiscal year that ended on July 2017 is the lowest since 2004-05.

According to the report, consumer prices grew at a much slower pace than estimated in 2016-17 benefited by base prices of the fiscal year 2015-16, lower global commodity prices and improved supply situation.

However, there exists uncertainty on whether the inflation would continue to be moderate because of the recent floods that have damaged Rs 8.11 billion worth crops across 31 districts of the country.

As per the Ministry of Agriculture and Development (MoAD), the floods have so far damaged paddy Rs 3.18 billion, vegetables (Rs 2.96 billion), pulses (Rs 536 million), fishes (Rs 800 million), turmeric (Rs 340 million) and maize (Rs 241 million).

However, MoAD is is yet to calculate the total loss caused by floods, which is likely to boost country’s import volume thus triggering inflationary pressure.

Floods in Tarai Hike Vegetable Prices

Shortage of supply due to recent floods in Tarai resulted in skyrocketing of vegetable prices in the Kathmandu Valley.

Due to floods, vegetable supply in the Valley’s market has declined by almost 200 tonnes per day.

Recent floods in Nepal have affected more than 16,474 hectares of vegetable farmlands in Tarai districts wiping out vegetables worth Rs 3 billion, which resulted in fall of supply volume.

According to a local Kanchan Poudel, even Rs 500 seems insufficient to buy vegetables for a day.

“Majority of ready-to-harvest vegetables in Tarai farmlands were swept away by the floods, which has largely affected the supply,” said Binaya Shrestha, Information Officer at Kalimati Fruits and Vegetable Market Development Board (KFVMDB).

According to KFVMDB officials, increased transportation costs for traders, due to landslide-affected routes, is also a reason behind the rise of vegetable prices.

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Recent floods, which have been concerning various parts of Nepal since a week, have badly hit the country’s agricultural sector resulting in huge crop loss for the country.

The Ministry of Agricultural Development (MoAD) informed that floodwaters wiped out crops worth Rs 8.11 billion and inundated huge tracts of land across 31 districts (19 severely) of the country.

Put together the loss of livestock and damage of private food stores, officials project further loss amounting to billions.

“This is the first time that the entire country, except Kapilvastu, has been flooded at the same time,” said Rishi Ram Sharma, Director General of the Department of Hydrology and Meteorology.

Nepal is facing this situation at a time when the country’s agricultural economy is witnessing some signs of recovery since the last fiscal.

The World Bank had projected Nepal’s economic growth rate at 7.5 percent in the last fiscal year on the basis of rise in agricultural output due to a favorable monsoon, elimination of power cuts and higher government spending, among others.

However, the country’s agricultural sector takes a hit again with the recent floods. According to officials, impact of the recent floods would be high on farmer incomes & inflation and a fall in domestic production may also increase country’s agricultural imports (currently close to Rs 200 billion mark).

Government Hopeful About Paddy Output

Despite this weakening situation, MoAD bets big on paddy output. It projects paddy output at 5.4 million tonnes in the current fiscal year, above the record production of 5.2 million tonnes in the last fiscal year.

“The floods have shattered growth prospects. But we are confident that the paddy harvest will not be lower than last year’s level,” said Yogendra Kumar Karki, Ministry Spokesperson.

According to the Ministry, the recent floods damaged 270,406 hectares of standing crops of paddy, maize, pulses, banana and spices and wiped out fishes in 2,224 hectares.

Overall, paddy plantation suffered major damage worth Rs 3.18 billion, followed by vegetables (Rs 2.96 billion), fishes (Rs 800 million), pulses (Rs 536 million), turmeric (Rs 340 million) and maize (Rs 241 million).

MoAD projects the loss could be much higher with loss of food stored by people in their homes  included.

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