Food Inflation Turns Negative: A Relief or a Risk?

Published on September 24, 2025

Nepal’s latest macroeconomic data shows that food inflation has turned negative, raising an important debate about whether this is a relief for consumers or a risk for the broader economy. In FY 2024/25, the food CPI fell to -1.19%, and by mid-August 2082/83 (2025/26) it declined further to -2.28%. At first glance, this decline seems like welcome news for households, as it lowers the cost of essential goods and eases pressure on family budgets. For a country where food accounts for a large share of household spending, cheaper food prices help improve living standards, reduce short-term inflationary pressures, and allow more room for savings or non-food consumption.

However, persistent food deflation also signals underlying risks. A key concern is that falling food prices may reflect weak agricultural productivity, oversupply in certain crops, or reduced domestic demand, all of which could hurt farmers’ incomes. Since a large share of Nepal’s population is dependent on agriculture for their livelihoods, sustained negative food inflation could discourage production, lower rural earnings, and deepen poverty in farming communities. This imbalance becomes even more significant when paired with Nepal’s high reliance on imported food items, which creates volatility and undermines domestic food security.

From a macroeconomic perspective, food price deflation contributes to overall disinflation—pushing CPI to just 1.68% by mid-August 2082/83—and reduces pressure on monetary policy. While this is good for price stability and financial planning, it can also indicate sluggish aggregate demand, which dampens private sector investment and job creation. Thus, while consumers may enjoy lower grocery bills, the long-term risks lie in depressed agricultural incomes and weaker economic activity in rural areas.

The challenge for Nepal is to manage this balance. Policymakers need to ensure that falling food prices do not harm rural producers by investing in productivity, storage, and export markets, while at the same time protecting consumers from volatility. If managed well, negative food inflation could provide breathing space for households and help anchor stable overall inflation. If left unchecked, however, it could become a drag on agricultural growth and rural welfare.

Policy Lessons from India: Can Nepal Control Inflation More Effectively?

India has kept inflation relatively moderate through strong agricultural systems, buffer stocks, and inflation-targeting policies, while Nepal has historically struggled with food-driven volatility. Nepal’s CPI fell below India’s in 2025/26 for the first time in four years, but to sustain this trend, Nepal must strengthen supply chains, adopt buffer policies, and set clearer inflation targets.

Inflation Convergence in South Asia: What Nepal-India CPI Data Reveals

Nepal and India’s inflation rates, once far apart, have gradually converged—Nepal’s CPI dropping from 7.74% in 2022/23 to 1.68% in 2025/26, while India’s remained steadier around 2–5%. For the first time in four years, Nepal’s inflation fell below India’s, highlighting both shared regional cycles and unique domestic vulnerabilities.

Nepal vs India: Monthly CPI Comparison and Regional Economic Impact

Nepal’s inflation fell to 1.68% in August 2025/26, below India’s 2.07%, reversing a four-year trend. While both economies share similar seasonal inflation cycles, Nepal’s sharper food-driven spikes contrast with India’s steadier, monsoon-driven patterns. Regionally, this convergence impacts household costs, trade competitiveness, and economic stability.

Inflation Gap Narrows: Nepal’s Deviation with India Falls to -0.39% in 2025/26

In August 2025/26, Nepal’s CPI stood at 1.68%, lower than India’s 2.07%, with the inflation deviation dropping to -0.39% for the first time in four years. While Nepal gained from falling food prices, India’s inflation stayed higher due to agricultural pressures, though both countries continue to face rising service costs.

Cross-Border Inflation Trends: How Nepal and India’s Prices Move Together and Apart

Nepal and India’s inflation trends usually move in sync, reflecting shared regional and global factors. But in August 2025/26, Nepal’s inflation (1.68%) fell below India’s (2.07%) for the first time in four years, thanks to easing food prices in Nepal, while India faced higher agricultural pressures.

Nepal vs India Inflation 2025/26: Why Nepal’s CPI Fell Below India’s for the First Time

In August 2025/26, Nepal’s inflation dropped to 1.68%, falling below India’s 2.07% for the first time in four years. While food price declines drove Nepal’s slowdown, India’s inflation held slightly higher due to agricultural pressures. However, Nepal’s service costs remain a long-term challenge, even as headline CPI looks favorable.