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

Published on September 26, 2025

The August 2025/26 CPI data shows that the long-standing inflation gap between Nepal and India has not only narrowed but reversed, with Nepal’s inflation falling below India’s for the first time in four years. Nepal recorded a 1.68% year-on-year inflation rate, while India stood at 2.07%, leaving a -0.39% deviation.

Historically, Nepal consistently ran higher inflation than India. In 2022/23, Nepal’s inflation averaged 7.74%, compared to India’s 6.06%, a gap of +1.68 percentage points. In 2023/24, the deviation narrowed to +0.34 points, with Nepal at 5.44% and India at 5.11%. By 2024/25, the two nearly converged, with Nepal at 4.06% and India at 3.91%, just a +0.16-point difference. Now, in 2025/26, the balance has shifted, with Nepal dipping below India.

The main factor behind Nepal’s lower inflation is the decline in food prices, particularly cereals and vegetables, supported by good harvests and stable imports. This has helped reduce household food expenditure significantly. However, non-food and service costs (housing, utilities, education, and health) are still rising, meaning that underlying structural inflation remains in the economy. In contrast, India’s inflation held higher due to agricultural pressures from uneven monsoons and service-sector demand, which kept prices elevated.

This narrowing and reversal of the inflation gap has key implications. For Nepalese households, it means temporary relief in daily expenses, while for policymakers, it signals success in stabilizing food inflation but also warns of ongoing service-cost risks. For regional trade, it highlights how closely Nepal and India’s economies are linked, yet how domestic supply and weather conditions can shift inflation dynamics independently.

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.