Nepal CPI Explained: Basket, Group Weights & How Inflation Is Measured

The Consumer Price Index (CPI) is the main gauge of inflation in Nepal. It measures the average change over time in the retail prices of a fixed basket of goods and services that households commonly buy. When the CPI rises, the same rupees buy fewer goods, which is what people mean by inflation. Nepal Rastra Bank (NRB), the central bank, has compiled and published the CPI for roughly five decades and reports it every month.

Because the CPI is built from a fixed basket, it isolates pure price change: the mix of items and their importance (weights) is held constant between rebasings, so the index moves only when prices move, not when spending habits shift. NRB reports inflation mainly on a year-on-year (Y-o-Y) basis, comparing a given month with the same month a year earlier, and also publishes month-on-month (M-o-M) changes.

The current index uses base year 2023/24 (Bikram Sambat 2080/81), meaning the index equals 100 in that reference period and every later month is expressed relative to it. The base is periodically updated so the basket keeps reflecting how Nepali households actually spend. For the first time, this rebasing draws its basket and weights from the Nepal Living Standards Survey (NLSS) rather than NRB's own Household Budget Survey.

The commodity basket and weights for the 2023/24 series are derived from the Nepal Living Standards Survey IV (NLSS-IV), conducted by the National Statistics Office (NSO), Government of Nepal, from July 2022 to June 2023 (weight reference period FY 2022/23). The survey collected detailed expenditure and consumption data from a nationally representative sample of 9,600 households across 15 analytical domains, covering all seven provinces in both rural and urban areas plus the Kathmandu Valley.

Weights represent each item's share of household expenditure and thus its relative importance in the overall index. Items with larger weights move the CPI more; items with smaller weights move it less. Household consumption is measured broadly, including cash spending on goods and services, the value of goods produced and consumed at home, and goods received in kind, with own-produced and in-kind goods valued at prevailing market prices. House rent covers both actual rents paid and imputed rents for owner-occupied homes, estimated using a hedonic regression method where no rent was reported.

Explicit weights are assigned to 249 goods and services named in the NLSS-IV questionnaire. For the remaining items grouped under 'other' or generic categories, implicit weights are assigned based on the number of price quotations collected in the retail survey. This update aligns Nepal's CPI with international good practice set out in the IMF's Consumer Price Index Manual (2020) and the UN Classification of Individual Consumption according to Purpose (COICOP) 2018 guideline.

At the top level the national CPI is published under two broad groups. Food and Beverage carries a weight of 35.49 percent and is broken into 10 sub-groups, while Non-Food and Services carries 64.51 percent and is broken into 13 sub-groups. Compared with the previous 2014/15 base year, the food group's share fell from 39.90 percent and the non-food share rose from 60.10 percent, reflecting rising spending on housing, services, restaurants and communications as incomes grew.

One reclassification is important for like-for-like comparisons. Alcoholic drinks, tobacco products, and restaurant and hotel services, which sat inside the food group under the old base, have moved into Non-Food and Services in the 2023/24 series. If those three sub-groups are counted with food, the food-and-beverage share works out to about 45.79 percent; on the old 2014/15 basis food-and-beverage was 43.91 percent and non-food-and-services 56.09 percent. This is why headline food weights quoted from different sources can look inconsistent unless the classification is stated.

Within the food group, cereal grains and their products form the single largest food sub-group (8.08 percent of the total index), followed by meat and fish (6.76 percent), vegetables (4.65 percent) and milk products and eggs (4.28 percent). Within non-food, housing and utilities is by far the heaviest sub-group at 16.66 percent, followed by restaurant and accommodation services (8.00 percent), transportation (6.26 percent), furnishing and household equipment (5.91 percent), clothes and footwear (5.65 percent) and health (5.51 percent). A new Insurance and Financial Services sub-group (0.93 percent) appears for the first time.

The 2023/24 CPI basket contains 525 items, up from 496 in the previous series. The list was fixed using a cut-off sampling method that captures 97 percent of total household consumption and covers at least 95 percent of consumption expenditure in each of the 15 domains, so rarely bought items with tiny shares are excluded to keep price collection manageable without losing representativeness. A limited replacement facility now lets obsolete items be swapped for equivalents within the same COICOP group, keeping the basket current between rebasings.

Prices are collected from 87 market centres spanning all 77 districts, a substantial expansion from 60 market centres across 50 districts in the old series. Market centres were selected using population distribution from the 2021 National Census and the count of industrial establishments from the NSO National Economic Census 2018, to ensure enough sample size for province-level indices. The 87 centres split into 66 urban and 21 rural markets, with three rural markets chosen per province.

This wider footprint lets NRB publish not just the national index but provincial indices (urban and rural), ecological-belt indices for the Mountain, Hill, Terai and Kathmandu Valley, and separate Kathmandu Valley figures covering Kathmandu, Lalitpur and Bhaktapur. Prices are gathered weekly, monthly or quarterly depending on how perishable an item is and how often its price is likely to change; weekly prices are averaged into a monthly figure. A centralised mechanism collects prices for 28 items such as data packages, phone calls, laptops and airfares that are uniform nationwide.

The CPI is built in two stages. First, elementary indices are computed for individual items within each market using the Jevons formula, an unweighted geometric mean of price relatives (the ratio of the current price to the base-period price) across the price quotations for that item. The geometric mean is preferred at this level because it handles item substitution better and dampens the effect of extreme individual price swings.

Second, these elementary indices are aggregated into sub-group, group and overall indices using a modified Arithmetic Laspeyres index, where each item is weighted by its expenditure share from the reference period FY 2022/23. This is the step where the group weights described above come in: each item's contribution to the headline number is scaled by how much of the average household budget it represents. Monthly indices are computed independently for each market centre and then combined up to provincial and national levels.

Data quality is enforced through a double-verification system: two enumerators in each market act as collector and verifier on alternating visits, the CPI software flags large price jumps for written explanation, and the Price Division of NRB's Economic Research Department reviews the reported prices. For seasonal or temporarily missing prices, a group-mean imputation method is used. Inflation is then read off the index as the percentage change over twelve months (year-on-year) or over one month (month-on-month).

The CPI is not Nepal's only price index. NRB also compiles a Wholesale Price Index (WPI), currently on base year 2017/18, which tracks prices at the wholesale stage across consumption goods, intermediate goods, capital goods and construction materials. Because it is measured before retail margins and taxes, the WPI acts as Nepal's de facto producer price index and moves differently from the CPI. For example, in mid-December 2024 y-o-y CPI inflation was 6.05 percent while WPI inflation was 6.52 percent. The CPI is the headline number that reflects the cost of living for households, whereas the WPI signals upstream cost pressures.

Headline inflation is the all-items CPI figure that includes everything in the basket, including food and fuel, whose prices swing sharply with weather, harvests and global commodity markets. Core inflation strips out or dampens those volatile components to reveal the underlying, more persistent trend that monetary policy can influence. NRB research has evaluated several core measures for Nepal, including exclusion-based indices (removing volatile food and energy items), the weighted median and the trimmed mean; these tend to be less volatile than headline inflation and correlate more closely with money-supply growth.

In practice the two numbers answer different questions. Headline inflation tells households and journalists what is happening to the actual cost of living this month. Core inflation tells policymakers whether price pressure is broad and durable, which matters when the central bank sets interest rates and liquidity. Nepal, unlike some peers, does not publish a single official core index every month; core measures are analytical tools used alongside the headline CPI rather than a formal target.

As a worked example of how the index is read, in the five months ending mid-December 2024 (part of FY 2024/25), NRB reported y-o-y consumer price inflation of 6.05 percent, up from 4.95 percent a year earlier. Food and beverage inflation ran hot at 9.99 percent while non-food and services inflation was 3.92 percent, showing how a single headline figure blends very different sub-group movements. By region, y-o-y inflation was 5.82 percent in the Kathmandu Valley, 6.31 percent in the Terai, and higher in the Hill and Mountain regions.

Inflation eased over the rest of that fiscal year: by mid-May 2025 y-o-y CPI inflation had slowed to about 2.77 percent, and the annual average for FY 2024/25 worked out to roughly 4.06 percent (food and beverage about 4.69 percent, non-food and services about 3.71 percent). These snapshot numbers change every month, so always cite them with their exact reference month or fiscal year; the methodology, basket and group weights above are the durable facts that let you interpret whatever the latest figure turns out to be.