Inflation, being defined as an increase in an economy’s general price level over a period of time, reduces the value of money and subsequently, purchasing power is falling.
For example – the value of a Nepali Rupees 100 in 1970 would be around Rupees 1200 in 2023, adjusted due to inflation. This inflation has an interesting relationship with unemployment and other economic factors. But what is the root cause of inflation and that why does it happen? Is it the government increasing prices in everything? The answer is no.
Out of many reasons being the causes of inflation, there are 4 main reasons and that are listed below:
1. Economic Growth
If the economy increases, then so increases the demand, which ultimately leads to the
increase in cost. This type of inflation is called Demand Pull inflation.
2. Increase in prices of raw materials
Due to bad weather or some unpredictable problems, the company manufacturing raw
material gets in trouble to manufacture them and so makes an increase in the pricings.
Similarly, if the government increases taxes in them, than that also leads to inflation.
This type of inflation is called Cost Push inflation.
3. Increase in Employee’s Salaries
The increase in the salary of employees can also make an impact in inflation. To make
profit, the company increases the prices of the products.
4. Currency Depreciation
The more government prints money, the lesser the value of money gets which causes
These were some of the major causes of inflation that is causing the expense rates to increase. But, the fun part is that, decreasing of the inflation is also not a good sign. As said above, inflation has an inverse relationship with unemployment and other economic factors. The decreasing of inflation causes decrease in demand and that causes businesses to shut down which results in increase in unemployment rate.
Talking about the current scenario of Nepal, in the tenth month of FY 2021/22, the y-o-y consumer price inflation in Nepal remained at 7.87 percent. This means that, on average, prices for goods and services in Nepal have increased by 7.87 percent over the past years. There are many reasons and factors causing inflation that has an unseen impact on our lives.
Nepal is grappling with skyrocketing inflation rates. The alarming surge in prices has caused significant concerns among citizens and policymakers alike, posing serious implications for the nation's economy and the well-being of its people. Over the past few months, Nepal has experienced an unprecedented rise in inflation, with the consumer price index reaching record highs.
The primary drivers behind this surge include increasing fuel costs, food price volatility, and disruptions caused by the ongoing global supply chain challenges. The COVID-19 pandemic has further exacerbated these issues, leading to a severe strain on the economy. One of the leading factors contributing to the inflationary pressures is the escalating fuel prices.
Nepal, heavily reliant on imports for its energy needs, has been impacted by the surge in global oil prices. The increased costs have a cascading effect on transportation, manufacturing, and various other sectors, leading to a surge in prices of goods and services across the country.
Food prices have also been a significant concern, particularly due to weather-related disruptions, such as erratic monsoon patterns and natural disasters, affecting agricultural production. Crop failures and supply chain disruptions have resulted in reduced food supplies and increased costs, exacerbating the inflationary pressures on essential commodities.
Moreover, the global supply chain disruptions have severely affected Nepal's import-dependent economy. Delays in shipments, shortages of raw materials, and higher transportation costs have led to production bottlenecks and reduced supply, driving up prices for goods ranging from electronics to construction materials.
The escalating inflation has had profound implications for the Nepalese population, particularly the most vulnerable segments.
Rising prices have eroded the purchasing power of individuals, making it increasingly challenging to meet basic needs and maintain a decent standard of living.
This has led to widespread concerns about poverty, inequality, and social stability. Recognizing the severity of the situation, the government of Nepal is taking steps to address the inflation crisis.
Efforts are being made to enhance domestic production, reduce reliance on imports, and stabilize prices through targeted measures. The government is also working closely with international partners to explore avenues for support and assistance to mitigate the impact of inflation on the economy and the people.
The road to curbing inflation and stabilizing the economy remains challenging, requiring a multi-faceted approach involving robust fiscal measures, monetary policy adjustments, and structural reforms. Additionally, long-term investments in sectors such as agriculture, energy, and infrastructure will be crucial to reduce import dependency and enhance self-sufficiency.
As Nepal navigates through this period of economic turbulence, the government, policymakers, and citizens must collaborate closely to implement effective measures that promote stability, protect the vulnerable, and lay the foundation for sustainable growth. Only through concerted efforts can Nepal overcome the current inflationary pressures and create a more resilient and prosperous future for all its citizens.