Central bank willing to transfer task of gauging inflation

KATHMANDU:

Nepal Rastra Bank (NRB) has expressed willingness to transfer the responsibility of measuring changes in inflation rate to another institution on condition that such a body is fully capable of executing the task.

The statement from the central bank comes a day after The Himalayan Times published news on NRB’s dual but conflicting role of setting the annual inflation target and measuring changes in consumer prices as well.

Prevalence of this practice has prompted flurry of speculation about chances of NRB ‘manipulating inflation data to show it has met the target’, as, many say, inflation figure released by the central bank every month ‘does not seem to reflect the market reality’.

“We would prefer another government agency or an independent body to collect prices of various goods in the consumer basket to gauge inflation. This would clear doubts on data manipulation,” a high-ranking NRB official said on condition of anonymity. “But prior to transferring this responsibility, the government must find a capable institution that could assume this task.”

Currently, NRB fixes the annual inflation target and conducts a study every month itself to check whether prices of various goods in its consumer basket ranging from cereal grains and vegetables to clothes and furniture have gone up or fallen.

For instance, NRB, last fiscal year, initially fixed annual inflation target at eight per cent, which was revised to 8.5 per cent in the middle of the year. At the end of the year, it finally stated that the actual annual inflation rate stood at 9.1 per cent.

This practice, many say, is tantamount to allowing a single body to press charges against a person and letting it issue verdict on whether the defendant is guilty. This, they say, tends to create conflict of interest.

Because of this reason, many countries allow the central bank to set inflation target and appoint another body to check fluctuation in prices of various consumer goods.

In the US, for instance, the inflation target is set by the Federal Reserve, the central bank, whereas the responsibility of gauging inflation rests upon the Bureau of Labour Statistics.

Although Nepal does not have such an institution, the only other body capable of performing this duty is the Central Bureau of Statistics (CBS). And since the Statistics Act allows the CBS to ‘appoint or designate officers to collect any type of data and information’, it would not face legal hurdles if it assumes the task.

CBS Director General Bikash Bista said: “We are informally holding discussions on the matter. But nothing has been finalised. Most probably the upcoming National Strategy for Development of Statistics — which the CBS is currently framing to standardise data collection and production methods — will include that provision.”

Inflation rate is considered a key economic indicator, as it provides the basis to frame the monetary policy and ensure price stability.

High inflation rate generally denotes faster erosion in the value of money. For instance, annual inflation of, say, nine per cent would mean that a good that used to cost, say, Rs 100 a year ago, would now costs Rs 109 — indicating nine per cent depreciation in value of money in real terms.

Because of this reason, the central bank always tries to contain inflation at a certain level by controlling money supply.

Source: THT