Chapter 2 · Week 2 — Prices: CPI, Wholesale Prices and Wages
Prices: CPI, Wholesale and Wages
How the index is built, why food and non-food inflation diverged sevenfold, and what a wholesale index tells you that a consumer index cannot.
Inflation is the one macroeconomic number every household feels directly, and the one most often quoted without anybody checking what it measures. This week you learn how Nepal's price indices are built, why the headline can be low while your kitchen budget rises, and what a wholesale index tells you that a consumer index cannot.
2.1 What a price index actually is
An index is not a price. It is a ratio to a base year, multiplied by 100.
┌────────────────────────────────────────────────────────────┐ │ │ │ cost of the basket this month │ │ Index = ───────────────────────────────────── × 100 │ │ cost of the same basket in the base year │ │ │ │ Nepal's CPI base year is 2023/24 = 100 │ │ │ └────────────────────────────────────────────────────────────┘ Overall CPI, mid-June 2026 (Jeth 2082/83) 109.42 Read that as: the same basket that cost Rs 100 in the base year costs Rs 109.42 now. Prices are 9.42% higher than the base year — NOT 9.42% higher than last year.
This is the most common misreading in Nepali price commentary. The index level measures distance from the base year. The inflation rate measures change over twelve months. They are different numbers and they answer different questions.
INDEX LEVEL vs INFLATION RATE
index
110 ┤ ● 109.42 ← level: 9.4% above base
│ ●
105 ┤ ●
│ ●
100 ┼──●─────────────────────────────────── base year 2023/24
└──┬───────┬───────┬───────┬───────┬──
base Y+1 Y+2 Y+3 now
The LEVEL keeps climbing even when INFLATION falls.
Inflation falling does not mean prices falling.
It means prices rising more slowly.2.2 The 2025/26 inflation picture
PRICE CHANGE, ELEVEN MONTHS 2025/26 (y-o-y, mid-June) CPI overall 2.72 % ██████ CPI food and beverages 0.54 % █ CPI non-food and services 3.94 % █████████ CPI period average 4.24 % ██████████ Wholesale price index 1.56 % ███ WPI period average 4.11 % ██████████
Two things in that block deserve a stop.
Food inflation at 0.54% against non-food at 3.94%. A seven-fold gap. The headline 2.72% is a weighted blend of two very different stories, and which one you experience depends entirely on how much of your income goes on food.
The y-o-y rate (2.72%) is well below the period average (4.24%). The period average is inflation across the whole eleven months; the y-o-y is the most recent twelve-month comparison. When y-o-y sits below the period average, prices have been decelerating through the year.
WHY THE TWO CPI NUMBERS DIFFER
PERIOD AVERAGE 4.24% Y-O-Y 2.72%
┌────────────────────┐ ┌────────────────────┐
│ average of every │ │ this month vs the │
│ month's inflation │ │ same month a year │
│ across the year │ │ ago — one reading │
└────────────────────┘ └────────────────────┘
backward-looking current-state
"what it was like" "where we are now"
average > y-o-y => inflation has been FALLING
average < y-o-y => inflation has been RISING2.3 Weights: why the headline is not your inflation
The CPI basket is weighted by how much a representative household spends on each group. Food and beverages carries 35.49% of the total weight.
HOW A GROUP MOVES THE HEADLINE
Contribution of a group = weight × that group's inflation
Food: 35.49% × 0.54% = 0.19 pp
Non-food: 64.51% × 3.94% = 2.54 pp
───────
Headline (approximately) 2.73 pp ≈ the printed 2.72%The arithmetic closes, and it shows exactly why the headline felt wrong to anyone whose spending is mostly food — or mostly not.
TWO HOUSEHOLDS, SAME COUNTRY, SAME MONTH ┌──────────────────────────┬──────────────────────────┐ │ LOW-INCOME HOUSEHOLD │ HIGHER-INCOME HOUSEHOLD │ │ ~60% of spending: food │ ~20% of spending: food │ ├──────────────────────────┼──────────────────────────┤ │ 0.60 × 0.54 = 0.32 │ 0.20 × 0.54 = 0.11 │ │ 0.40 × 3.94 = 1.58 │ 0.80 × 3.94 = 3.15 │ │ ──────── │ ──────── │ │ felt inflation 1.90% │ felt inflation 3.26% │ └──────────────────────────┴──────────────────────────┘ Illustrative weights, real group inflation. The published 2.72% is nobody's actual experience — it is the average of a distribution, and this year the distribution is wide.
2.4 Inside the food basket
The sub-groups move independently, and some of them move violently.
FOOD SUB-GROUP INDEX LEVELS (base 2023/24 = 100) mid-June 2026 vs a year earlier sub-group weight yr ago now ───────────────────────────────────────────────────── Ghee and Oil 2.97% 111.25 127.43 ▲▲▲ Fruit 3.23% 108.29 129.13 ▲▲▲ Milk products and Eggs 4.28% 104.05 105.75 ▲ Meat and Fish 6.76% 101.47 105.69 ▲ Cereal grains 8.08% 104.49 103.92 ▼ Pulses and Legumes 1.76% 105.67 104.54 ▼ Vegetable 4.65% 94.29 98.46 ▲ Spices 1.80% 94.53 94.98 ~ ───────────────────────────────────────────────────── Food and Beverages 35.49% 102.95 107.66
Ghee and oil up about 14.5% in a year; fruit up about 19%; cereals actually *down*. Vegetables and spices both still below the base year — index under 100 means cheaper than 2023/24.
2.5 Wholesale prices — the early warning
The Wholesale Price Index measures prices at the first point of bulk sale, before retail margins, transport and taxes are added.
WHERE EACH INDEX SITS IN THE CHAIN
producer / importer
│
▼
┌─────────────┐
│ WHOLESALE │ ← WPI measures here
└──────┬──────┘
│ + transport, margin, tax, retail cost
▼
┌─────────────┐
│ RETAIL │ ← CPI measures here
└──────┬──────┘
▼
household
WPI moves FIRST. It is the leading indicator; CPI is the
lagging one. A sustained gap between them tells you
something is being absorbed or passed on in the middle.At mid-June 2026: WPI y-o-y 1.56% against CPI y-o-y 2.72%.
WPI 1.56% < CPI 2.72%
Wholesale prices are rising more slowly than retail prices.
Possible readings — and you need other evidence to choose:
• margins in the distribution chain are widening
• services (in CPI, largely absent from WPI) are the
source of the pressure
• past wholesale increases are still feeding through
The third is supported here: WPI period average (4.11%)
is far above WPI y-o-y (1.56%), so wholesale inflation
has decelerated sharply and retail has not caught down yet.2.6 Wages: the index that decides whether inflation hurts
The Salary and Wage Rate Index answers the question the other two cannot: is income keeping up?
┌────────────────────────────────────────────────────────┐ │ │ │ REAL WAGE GROWTH ≈ wage index growth │ │ − CPI inflation │ │ │ │ Positive: workers can buy more than last year │ │ Negative: they can buy less, whatever the │ │ headline inflation number is │ │ │ └────────────────────────────────────────────────────────┘
Worked example — the recent record.
year wage index CPI y-o-y real wage
y-o-y change
──────────────────────────────────────────────────
2021/22 9.09 % 8.08 % +1.01 pp
2022/23 8.71 % 7.44 % +1.27 pp
2023/24 3.56 % 3.57 % −0.01 pp
2024/25 2.63 % 2.20 % +0.43 pp
──────────────────────────────────────────────────
Wage growth has slowed from 9% to under 3% in three years.
Because inflation slowed at almost exactly the same pace,
real wages have been roughly FLAT — not falling, but not
improving either.That is the honest reading of Nepali living standards from this data: nominal numbers came down a lot, and in real terms almost nothing changed.
2.7 Nepal and India
Nepal's rupee is pegged to the Indian rupee, and a large share of Nepal's imports come from India. Indian inflation therefore arrives in Nepal whether NRB wants it or not.
THE IMPORTED-INFLATION CHANNEL
┌──────────────────┐
│ Indian prices │
└────────┬─────────┘
│ fixed exchange rate: no cushion
▼
┌──────────────────┐
│ Nepali import │
│ prices │
└────────┬─────────┘
▼
┌──────────────────┐
│ Nepali WPI │ ← shows up here first
└────────┬─────────┘
▼
┌──────────────────┐
│ Nepali CPI │ ← then here, with a lag
└──────────────────┘
Consequence for policy, and it is a big one:
NRB cannot set Nepali inflation independently. With a
pegged currency and an open border, a large part of the
price level is decided in Delhi, not Baluwatar.The release devotes a whole table to comparing Nepali and Indian CPI for exactly this reason. When you see Nepali inflation move without any domestic cause, look across the border before looking for one.
Formulas from this week
Index = (cost of basket now ÷ cost in base year) × 100
Inflation y-o-y= (Index now ÷ Index 12 months ago − 1) × 100
Group contribution to headline
= group weight × group inflation
Headline ≈ Σ (weight × group inflation)
Real wage growth
≈ wage index growth − CPI inflation
Deceleration test
period average > y-o-y => inflation falling
period average < y-o-y => inflation risingWhat you should be able to do now
- Explain the difference between an index level and an inflation rate, and why a falling inflation rate does not mean falling prices.
- Compute a group's contribution to headline inflation from its weight.
- Show why the same published inflation rate is experienced differently by a low-income and a higher-income household.
- Use the period-average-versus-y-o-y comparison to say whether inflation is accelerating or decelerating.
- Explain what WPI measures that CPI does not, and read a gap between them.
- Compute real wage growth and say what it means for living standards.
- Explain why a pegged exchange rate limits NRB's control over inflation.
Next week: the external sector — exports, imports, and the single commodity that explains almost all of this year's export growth.
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