Rising prices, poverty and lack of jobs are three of the biggest economic problems in Nepal and favourite topics in Lok Sewa. This note explains what inflation is and how it is measured, the different ways poverty is measured, and the types of unemployment, with Nepal’s key programmes and survey results.
1. Inflation
- Inflation is a continuous rise in the general price level, which reduces the purchasing power of money.
- In Nepal it is measured by the Consumer Price Index (CPI), published by Nepal Rastra Bank.
- Because of the open border and the fixed exchange rate, Nepal’s inflation is closely linked to India’s.
| Term | Meaning |
|---|---|
| Demand-pull inflation | Too much money chasing too few goods |
| Cost-push inflation | Rising costs of production (wages, fuel, raw materials) push prices up |
| Creeping / walking inflation | Slow, mild rise in prices |
| Galloping / hyperinflation | Very fast, out-of-control price rise |
| Deflation | Continuous fall in the general price level |
| Disinflation | Inflation rate slows down but prices still rise |
| Stagflation | High inflation together with high unemployment and slow growth |
2. Poverty
| Concept | Meaning |
|---|---|
| Absolute poverty | Unable to meet minimum basic needs (food, clothing, shelter) |
| Relative poverty | Poor compared with others in the same society |
| Poverty line | Minimum income or consumption needed for basic needs |
| Multidimensional Poverty Index (MPI) | Measures deprivation in health, education and living standards; developed by UNDP and Oxford (OPHI) in 2010 |
| Gini coefficient | Measures income inequality: 0 = perfect equality, 1 = perfect inequality |
- Nepal measures income poverty through the Nepal Living Standards Survey (NLSS); the fourth NLSS (2079/80) found about 20.27% of people below the national poverty line.
- Causes: dependence on low-productivity farming, unemployment, low education, inequality, geographic remoteness and social exclusion.
- Measures: targeted programmes, social security allowances, microfinance, education, skills training and employment programmes.
3. Unemployment
| Type | Meaning |
|---|---|
| Open unemployment | Willing and able to work but no job at all |
| Disguised unemployment | More people work than needed (common in family farming); removing some does not reduce output |
| Seasonal unemployment | No work in certain seasons, e.g. after harvest |
| Structural unemployment | Mismatch between workers’ skills and available jobs |
| Frictional unemployment | Temporary, while changing jobs |
| Cyclical unemployment | Caused by economic slowdown |
| Underemployment | Working fewer hours or below one’s skill level |
| Educated unemployment | Educated people without suitable jobs |
- The Prime Minister Employment Programme (2075 BS) aims to provide at least 100 days of work to unemployed people.
- Lack of jobs at home is the main reason for foreign labour migration and remittance dependence.
4. Key figures and measures in Nepal
| Issue | Main measure in Nepal | Who acts |
|---|---|---|
| Inflation | Monetary policy (policy rate, CRR, open market operations); supply of essential goods | Nepal Rastra Bank, Ministry of Finance |
| Poverty | Targeted programmes, social security allowances, poverty identity cards | Ministry of Land Management, local levels |
| Unemployment | Prime Minister Employment Programme, skills training, self-employment loans | Ministry of Labour, Employment and Social Security |
| Price monitoring | Market inspection against black-marketing | Department of Commerce, Supply and Consumer Protection |
Nepal Rastra Bank keeps an inflation target in its yearly monetary policy, usually around 5–6.5 percent. Poverty is measured both by income (absolute poverty line) and by the Multidimensional Poverty Index (MPI), which looks at health, education and living standards.
5. How the three problems are linked
- High inflation reduces the real income of poor families, pushing more people into poverty.
- Unemployment lowers income and spending, which keeps poverty high.
- Large remittance inflows raise demand and can push up prices, while also reducing poverty.
- Job creation in agriculture, industry and tourism tackles both poverty and unemployment.
6. How this topic is asked in the exam
Objective items ask definitions (demand-pull vs cost-push inflation, absolute vs relative poverty, disguised unemployment) and which body controls inflation. Subjective questions often ask “What are the causes of poverty in Nepal? Suggest measures” or “Explain the relationship between inflation and poverty.” Use the table above for measures and give two or three Nepal-specific examples.
📌 Key points to remember
- Inflation is a continuous rise in the general price level; CPI is published by NRB.
- Demand-pull: too much money; cost-push: rising costs.
- Stagflation: high inflation with high unemployment.
- Absolute poverty: cannot meet basic needs; relative poverty: poor compared with others.
- MPI (UNDP and OPHI, 2010): health, education, living standards.
- Gini coefficient: 0 equality, 1 inequality.
- NLSS IV (2079/80): about 20.27% below the poverty line.
- Disguised unemployment is common in agriculture; PM Employment Programme began in 2075 BS.
Test yourself: Inflation, Poverty and Unemployment
50 questions on Inflation, Poverty and Unemployment. Each attempt picks 25 at random.