Abstract
This chapter presents an overview of the long-term trends in food and non-food inflation, and estimates the relative contributions of various food products to overall food inflation. Key findings are that the underlying character of inflation in Nepal changed fundamentally since around 2007 with food inflation becoming much more prominent and a large contributor to overall inflation, vegetables were the top contributor to food inflation, and that food prices are strongly cointegrated with Indian prices, but not non-food price. Unrecorded informal trade with India should explain much of the close price linkages. Food prices tend to be more volatile during periods of high prices and ensuring price stability is a matter of great concern. Further, price surges do not necessarily lead to positive supply response.
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