CPI Trends in Nepal: Inflation Cooling Down in 2082/83?

Nepal’s inflation trajectory, as measured by the Consumer Price Index (CPI), shows a clear pattern of cooling down in recent years after a period of volatility. In FY 2020/21, inflation stood at 4.19%, relatively stable by regional standards. However, it surged to 8.08% in FY 2021/22, driven by global supply chain disruptions, rising oil and food prices, and domestic bottlenecks. Inflation remained elevated at 7.44% in FY 2022/23, straining household budgets and increasing borrowing costs.

The tide began to turn in FY 2023/24, when CPI inflation moderated sharply to 3.57%, helped by easing global commodity prices, a stronger external position, and improved foreign reserves. By FY 2024/25, inflation cooled further to 2.20%, with mid-August data for FY 2082/83 showing a still-lower reading of 1.68% year-on-year. This is the lowest level in recent years and indicates that Nepal has entered a phase of relative price stability.

Breaking it down, the food CPI tells a different story. While overall inflation has fallen, food prices have shown volatility, including periods of deflation such as -1.19% in FY 2024/25 and -2.28% by mid-August 2082/83. This reflects supply fluctuations, import dependency, and seasonal agricultural trends. Meanwhile, non-food CPI has remained more stable, hovering around 3–4%, suggesting that core inflation is under control even as food prices swing.

For the broader economy, cooling inflation has both positives and challenges. On one hand, it improves household purchasing power, supports consumption, and lowers pressure on interest rates, creating a more stable environment for businesses and investors. On the other hand, very low inflation—or deflation in food items—could signal weak demand and sluggish domestic activity, especially in agriculture and small-scale industries. This balance highlights that while inflation stability is a positive development, Nepal must still focus on stimulating production and investment to ensure growth is not hindered by weak demand.