Nepal's inflation reaches 6.34% as the economy ends 2025/26 on a firmer note
Output grew 4% in the final quarter of 2025/26, but consumer prices are rising far faster than a year earlier, with food, oils and transport leading the climb.
A quarter that beat the government's forecast and a price index that has more than tripled its pace sit side by side in Nepal's latest data. They tell different stories about the same economy.
Output between mid-April and mid-July 2026 was 4% higher than a year earlier, edging past the 3.85% the government had projected for 2025/26 as a whole. Annual consumer inflation, by contrast, reached 6.34% in the second month of 2026/27, from 5.96% in the month before and 1.87% a year earlier, according to Nepal Rastra Bank (NRB), the central bank.
The comparison is imperfect, since one is a single quarter and the other an annual target. The question for businesses is whether growth that is broad but modest can absorb a sharp rise in prices.
A good quarter with narrow foundations
Balendra Shah became prime minister on 26 March 2026, just ahead of the final quarter, so the 4% figure spans his first three months in office. The National Statistics Office credits hydropower, higher banking deposits and loan disbursements, life insurance premiums and a revived hospitality sector. Growth stayed moderate because the state spent less than in the same quarter of 2024/25, and manufacturing and agriculture were subdued.
The breadth is real: 17 of 18 industrial groups expanded, and only public administration and defence shrank, by 0.12%. But the leaders are telling. Electricity, gas and steam grew 24.36%, financial and insurance activities 9.07%, and accommodation and food services 7.84%. Manufacturing grew 1.44%, construction 2.38% and agriculture 1.35%.
Seasonally adjusted, manufacturing was the only sector to contract against the previous quarter, by 0.48%.
Source: National Statistics Office
Fourth-quarter output of Rs 671.31bn is about $4.41bn at the central bank's rate of Rs 152.24 to the dollar. The same quarter of 2024/25 produced Rs 645.48bn. Constant prices measure physical production, not the market value of the economy.
Prices are the new problem
Food and beverage prices rose 7.54% in the first two months of 2026/27, after falling 1.34% in the same period of 2025/26. Non-food and services inflation was 5.69%. Wholesale inflation reached 8.08% in the Nepali month of Bhadra (mid-August to mid-September 2026), up from 2.10% a year earlier. Wholesale prices can pass through to shop shelves, so the gap between the two is worth tracking.
- Ghee and edible oils16.68%
- Fruits15.99%
- Transportation12.77%
- Sugar and products12.14%
- Fish and meat7.34%
- Vegetables7.07%
- Spices6.71%
Source: Nepal Rastra Bank
The burden is uneven. Rural inflation was 6.78% against 6.19% in urban areas. Madhesh province recorded 7.48%, the highest, and Sudurpashchim 5.16%, the lowest. The Kathmandu Valley, at 5.28%, was the mildest region, against 6.89% in the Tarai.
Transportation prices rose 12.77%, the third-largest rise among the categories charted. Wholesale and retail trade, the second-largest sector, still grew 5.97% on higher imports and domestic production.
The policy question
The numbers suggest a tension for policymakers. Rising inflation argues for caution, while moderate growth and subdued manufacturing argue for support. Because part of the price rise sits in food, oils and transport, interest rates may have limited effect on it.
The government holds the other lever. The statistics office links moderate growth partly to lower public spending than a year earlier.
Nepal's quarterly growth has also been erratic. In the five fiscal years to 2025/26 it peaked at 9.1% in the fourth quarter of 2021/22 and fell 1.0% in the second quarter of 2022/23. A single quarter is therefore a data point, not a trend.
What to watch
- The NRB's next monthly inflation reading, and whether wholesale prices reach retail.
- Loan disbursements and deposit growth, which the statistics office cited as supports for growth.
- Government spending in 2026/27 compared with the reduced level in the final quarter of 2025/26.
- Manufacturing output, the one sector that contracted sequentially.
How this story was made: researched and written by The Standard’s desk with AI assistance, from the published reporting and official data credited below, and checked against those sources. Our standards.
