Food vs Non-Food Price Trends: The Changing Face of Inflation

Nepal’s inflation story in recent years has shifted from being primarily food-driven to being increasingly shaped by non-food price pressures. The data from mid-August 2082/83 (2025/26) shows a stark divergence: food CPI fell by -2.28%, while non-food CPI rose by 3.95%. This split indicates a new phase in Nepal’s inflation pattern, where consumers enjoy relief at the grocery basket but continue to face rising costs in other essential categories.

The decline in food prices is linked to strong harvests, increased imports supported by record foreign exchange reserves, and lower global commodity prices. Food inflation had already turned negative in FY 2024/25 (-1.19%) and has deepened further this fiscal year. For urban households, this has provided welcome relief, while for rural farmers, it has translated into reduced incomes and lower profitability, worsening rural-urban income inequality.

On the other hand, non-food inflation has proven more persistent. Items such as housing, utilities, education, healthcare, and transport have continued to climb steadily. Even as overall CPI inflation dropped to just 1.68% by mid-August 2082/83, non-food inflation remained sticky, highlighting structural cost pressures. Urban families, in particular, are feeling this burden, as a large share of their spending is directed toward rent, school fees, medical costs, and energy.

This divergence between food and non-food inflation underscores the changing face of Nepal’s inflation challenge. In the past, inflation spikes were often driven by food shortages and agricultural volatility. Today, the bigger risk lies in non-food sectors, where price pressures are less seasonal and more structural. For policymakers, the task is twofold: ensuring farmers do not suffer from prolonged food deflation while also addressing rising urban living costs that erode household purchasing power.

If left unchecked, this imbalance could slow domestic demand. Cheaper food supports consumption in the short run, but persistently high non-food inflation limits disposable income and savings. To manage this transition, Nepal must invest in agricultural value chains to stabilize farm incomes and pursue reforms in housing, energy, and public services to contain non-food inflation.