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Inflation in Nepal: How Much Has the Cost of Living Increased?

inflation in nepal

Inflation in Nepal: How Much Has the Cost of Living Increased?

Three years ago, you bought a gas cylinder from a shop, and you paid Rs.1475; but Now, if you buy the same gas cylinder, you have to pay Rs.1800 The increment of Rs 325 within the 2 years of the gap is inflation. 

In a simple sentence, inflation is the increment in the price of general products that we use daily and decrement in the currency’s value. 

Nepal is facing economic downward for the first time in 60 years; if we look at the economic condition of Nepal, Nepalese people are facing the effect caused by high inflation. Nepal is an import-based country, and the condition of inflation is uncontrollable by the government. 

 People’s livelihoods in Nepal have been impacted by 7.4 percent inflation, which means that the prices of goods, especially essential commodities and land, are rising rapidly. 

Inflation was not bad before, but after COVID-19, the inflation rate has increased rapidly. The economy has worsened even more due to the Ukraine war, as the price of oil has risen due to increased inflation. 

Due to the lack of job opportunities in Nepal, a Large number of people from Nepal leave the country for the better seek of job opportunities. 

Out of Nepal’s 30 million, nearly 1500 youth are leaving the country every day for jobs abroad. Although the government is stepping certain steps, the country’s economic situation is even worsening.  

Causes Of Inflation In Nepal:

There are many causes of Inflation in Nepal. Some of them are:

  • Increase in price of fuel:

 We might think the increased price of fuel only affects the people who have vehicles, but we are wrong. Fuel prices also increase product manufacturing and transportation costs. 

As a result, different organizations increase the price of their product in order to maintain their profit. When the price of basic needs increases, general people should buy that product whatever the price will be. So this is how inflation is caused mainly by the increased price of fuel. 

  • Shortage in goods and services:

When certain goods, especially the goods needed to fulfil our basic needs, get into shortage, it automatically increases the demand for that good. In such a situation, there will be high pressure on the demand for the goods, which causes the rise of the price level in the economy and directly increases inflation.  

  • Increase in indirect taxes:

When the indirect taxes, including VAT, excise duty, and customs duty, increase, the price of the goods will also increase, and there are high taxes on the goods that are imported from other countries, which is causing inflation in Nepal. 

  • International reasons:

As today’s world is called the era of globalization, the whole world is like a home, where one country is dependent on another country for certain things. 

When the price for a certain good increases in one country where the good is produced, it will lead to an increase in other countries where the good is going to be exported. As a result, inflation will be caused. 

 Effect Of Inflation On Economic:

Moderate inflation doesn’t provide any negative impact on the economy but inflation is being hyper in Nepal these days and causing many negative impacts on the economy; some of them are:

  • The value of money decreases:

The value of Nepalese currency is very low in comparison to the other country’s currency, which means the value of money is decreasing, and this is because of inflation. Because of the decline in the value of money, expenditure is increasing, and the rate of saving is discouraged among Nepalese.

Because of less saving, capital formation is also less, and the investment decreases, consequently increasing unemployment among people and effecting negatively in the economy of Nepal. 

  • Loss of faith in domestic currency:

When your domestic currency’s value is very low, you would not like to earn money in your domestic currency as you’ll like to go for the money with the highest value. 

This leads to a loss of faith in your own country’s currency and leads you to go to another country to earn money that has higher value in the economy.

  • Decreases quality product:

In a situation of inflation, the demand for goods will increase; at that condition, the general people will buy any good to fulfil their basic needs, and in such a situation, the factories can sell any kind of goods. 

The factories will take advantage of such a situation and make the product with low quality to make more profit. So they are encouraged to reduce the quality of the products to earn more profit. 

Inflation Rate Table for Nepal Over a 10-Year Period

YearInflation RateAnnual Change
2016 8.79%0.92%
Data Source: World Bank

The above table shows the data on the inflation rate of Nepal from 2012 to 2021. This table simply shows Nepal’s inflation rate fluctuations during specific years and provides an overview of the rate of inflation that fluctuated yearly.

 In the Annual Change column, positive numbers indicate that the inflation rate increased from the previous year, while negative values indicate that it decreased.

Inflation Rate Figure 

What Is The Optimum Level Of Inflation?

 The developed nations have decided that they should maintain an inflation rate of about 2% by The central banks and the governments. If the inflation is more than 2, then they will try and reduce it, And if it is less, they will try. 

For Nepal, the optimum Level Of Inflation should be 6%; this level will keep the prices stable and keeps the levels of unemployment at their lowest


When was the highest and lowest inflation in Nepal?

The all-time highest inflation in Nepal was in the year 1996 May, which was 30.42%, and the lowest was in 1967 at a rate of -11.54%.

Who calculates the inflation rate in Nepal?

Nepal Rastra Bank, which is the only central bank of Nepal, is responsible for the calculation of the Inflation rate in Nepal. 

Is inflation good or bad?

Inflation can be both good and bad, depending on the different factors and the level at which it occurs. 

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