Nepal's inflation nears 6%, and the figures predate the flood

Consumer prices in Nepal rose 5.96% in the year to mid-August 2026, according to Nepal Rastra Bank's report on the first month of the 2026/27 fiscal year, released on 18 September. A year earlier the rate was 1.68%. The figure is the first reading of the new fiscal year, and it was collected before the Bhotekoshi flood of 26 August damaged roads, bridges and hydropower plants.

The rise has been building for several months. Average inflation for the whole of 2025/26 was a mild 3.08%, Ratopati reported from central bank data, down from 4.06% the year before. But the year-on-year rate had already reached 5.14% in the last month of that fiscal year, mid-June to mid-July, against 2.20% in the same month of 2025. Kantipur summed up the new reading plainly: market prices rose by around 6%.

Food turns, fuel feeds through

The sharpest change is in food. In mid-August 2025 the food and beverage index was 2.28% lower than a year before; this August it was 6.77% higher, the central bank said. Within the group, ghee and cooking oil rose 15.62%, fruit 15.39%, meat and fish 8.65%, vegetables 6.90% and spices 4.80%. Over the whole of 2025/26, food inflation had averaged only 1.04%, according to Ratopati, with vegetables, spices and pulses cheaper than the year before.

Non-food items and services rose 5.52%. Transport led them with a 13.17% increase, followed by alcoholic drinks at 7.20%, clothes and footwear at 5.52% and tobacco at 4.97%. Transport costs reflect the fuel shock that followed the conflict in the Gulf, described in our report on Nepal's pump prices.

Wholesale prices are rising faster than retail ones. The wholesale index was up 8.27% year on year, against 2.37% a year earlier, and wholesale prices of intermediate goods, the inputs that factories and builders buy, rose 13.62%. The import price index, based on customs data, rose 14.5% while export prices rose 6.5%, so Nepal's terms of trade worsened by 7.0%, the central bank reported.

Where prices rose most

The increase was uneven. Rural prices rose 6.18% and urban prices 5.88%. Madhesh Province had the highest inflation at 6.94% and Sudurpashchim the lowest at 4.61%. By region, the Terai recorded 6.64%, the hills 5.95%, the mountains 5.10% and the Kathmandu Valley 4.81%. India recorded inflation of 4.82% in August, the central bank noted, more than a percentage point below Nepal's rate.

The flood is likely to push prices higher. In its September outlook the Asian Development Bank raised its inflation forecast for 2026/27 to 5.3%, from 5.0% in July. It said flood damage to crops, transport links and distribution networks would constrain supplies of food and other essentials and raise logistics costs, while reconstruction would lift demand for construction materials, transport and labour. Higher global fuel prices would add to the pressure, the bank said.

Not every indicator points the same way. The ADB noted that in 2025/26 inflation came in slightly below its forecast because food prices held steadier than expected, and food inflation that year averaged 1.1% by its count.

What to watch: the central bank's report for the second month of the fiscal year, due in October, which will be the first to include prices after the flood; food prices in the Dashain and Tihar season; and whether wholesale inflation in intermediate goods begins to show up in the consumer index.