Price hike slows down but set to go up

The price of essential food items has been scaling a new high everyday thanks to hoarding, supply constraints and over-supply of money in the market, though the data of the last month (mid-July) of the fiscal year 2008-09 reveals that the price rise slowed down to 11.4 per cent.
In a bid to control spiriling price rise, the Department of Commerce (DoC) has been raiding various shops and godowns but not a single trader has been punished till date.
According to Nepal Rastra Bank (NRB), the price rise has come down to 11.4 per cent from 12.3 per cent a month ago. "The price hike in non-food items has come down dragging the inflation rate down," said a source at the central bank that publishes the price hike rate every month. "However, the prices of food items have not come down."
The persistant rise in money supply has contributed to price hike. "The money supply has risen by 27 per cent in the last month of 2008-09," the source said adding that the huge money supply that has seen persistant growth is something that was observed only during 1993.
The last fiscal year saw a continuous rise in the price of food items. During the fourth month (mid-November 2008) of the last fiscal year, the price hike was at its peak at 14.5 per cent. "But its a temporary phenomenon and prices have again gone up by now," the source added.
The Monetary Policy for the fiscal year 2009-10 has projected the price hike at 7.5 per cent but it has failed to crack whip the crack on price rise.
People have not got any relief from the price spiral as the government failed to manage financial, monetary and political causes. The key reason behind the price hike is short-supply and more money in the market. "When more money is chasing less goods -- due to hoarding, curtailing and supply constraints, the price will obviously rise," the source said.
Rise in salary and remittance inflow have also contributed to the price hike. Remittance -- according to the 11th month report of 2008-09 -- touched Rs 188.88 billion. "Easy money -- remittance -- is fueling consumerism and pushing prices up.
Though remittance has helped maintain balance of payment (BoP) and forex reserve it is creating demand pressure. Investment of remittance in unproductive sectors has virtually hit the manufacturing sector leading to more unemployment.
"It is also due to non-monetary reasons," said the NRB top official. The Fiscal Policy -- budget and Monetary Policy -- both failed to bring the price hike into control due to non-monetary factors' role in the price rise.
Apart from that, government spending on development activities -- that could have generated employment -- has dropped and non-budgetary and administrative expenses are rising.

Price hike in fiscal year 2008-09
First Month (mid-August) -- 13.1 per cent
Second Month (mid-September) -- 13.5 per cent
Third Month (mid-October) -- 14.1 per cent
Fourth month (mid-November 2008) -- 14.5 per cent
Fifth Month (mid-December) -- 14.1 per cent
Sixth Month (mid-January) -- 14.4 per cent
Seventh Month (mid-February) -- 13.7 per cent
Eighth Month (mid-March) -- 13.1 per cent
Nineth Month (mid-April) -- 11.9 per cent
Tenth Month (mid-May) -- 12.9 per cent
Eleven Month (mid-June) -- 12.3 per cent
Twelve Month (mid-July) -- 11.4 per cent
(Source: Nepal Rastra Bank)