Arya News - Wholesale prices surged 8.47 percent in mid-June, driven by a spike in fuel and energy costs, raising concerns that higher production costs will soon feed into consumer prices ahead of the Dashain festival.
KATHMANDU – Nepal’s wholesale inflation climbed to a 39-month high of 8.47 percent in mid-June, up sharply from 1.56 percent a year earlier, as the West Asia crisis sent fuel prices soaring.
The surge was largely driven by a 48.14 percent increase in energy prices, which pushed wholesale prices of manufactured goods up by 10.97 percent, according to the Nepal Rastra Bank.
The central bank said year-on-year wholesale prices of consumption goods declined by 1 percent in mid-June, while intermediate goods rose by 14.64 percent and capital goods by 4.78 percent.
Intermediate goods are semi-finished products, components and raw materials—such as steel, microchips and flour—that are used to produce other goods.
Wholesale inflation measures changes in the prices businesses pay for goods before they reach consumers, making it an early indicator of future retail inflation.
“The rise in wholesale inflation indicates that inflationary pressure is building and is likely to be passed on to consumers for some time,” said Gunaraj Bhatta, director at the central bank.
Whether the entire increase is passed on to consumers depends on market competition and the type of products, he said. Producers and traders may absorb part of the higher costs instead of transferring them fully to consumers.
The United States and Israel launched a military assault on Iran on February 28, triggering a sharp rise in global oil prices.
Within three months of the conflict, petrol prices in Nepal climbed to Rs219 a litre from Rs156, while diesel rose to Rs237 a litre from Rs139. The price of liquefied petroleum gas (LPG) increased to Rs2,160 a cylinder from Rs1,910.
The higher fuel prices pushed up transportation costs for both passengers and freight, increasing production and distribution expenses across the economy.
As tensions around the Strait of Hormuz eased and global crude oil prices fell, domestic fuel prices also declined. Petrol now costs Rs197 a litre, diesel Rs195 a litre and LPG Rs2,060 a cylinder.
Wholesale inflation for non-food products jumped by 25.44 percent. The category includes alcoholic beverages, tobacco, clothing and footwear, housing, and utilities, among others.
Among manufactured goods, wholesale prices of textiles rose by 7.77 percent, chemicals and chemical products by 14.75 percent, and basic metals by 32.20 percent. Wholesale prices of rubber and plastic products increased by 6.06 percent.
The wholesale price index for construction materials rose by 3.09 percent in the review month.
The central bank compiles the national wholesale price index by tracking the prices of 262 items across 24 market centres.
Consumer price inflation stood at 5.22 percent in mid-June, compared with 2.72 percent a year earlier. Food and beverage inflation was 4.95 percent, while non-food and services inflation reached 5.37 percent.
Economists say Nepal’s weak market regulation allows businesses to raise prices quickly when costs increase, while anti-competitive practices such as syndicates and cartels further amplify inflation.
“There is a tendency to pass the entire increase in costs to consumers, and often even add extra margins because our businesses are generally not large or financially strong enough to absorb higher costs,” said Nara Bahadur Thapa, former executive director of Nepal Rastra Bank.
According to Thapa, it usually takes two to three months for higher wholesale prices to reflect in retail inflation, meaning consumers are likely to feel the full impact around Dashain, when demand for both food and non-food goods typically peaks.
In its monetary policy for the current fiscal year, the central bank said inflationary pressures arising from external factors are expected to ease gradually. It aims to keep consumer inflation at around 5.5 percent.