A review on impact of inflation on economic growth in Nepal

This study shows that there is no consensus on the relationship between inflation and economic growth in economic literature. The answer to whether inflation is generally conducive or detrimental to economic growth is still inconclusive. Various arguments have been put forward on both sides. It is generally believed that a low and stable inflation rate helps economic activities, while high inflation hurts growth. The study finds overwhelming support in favor of the specific threshold level of inflation that is appropriate for growth in Nepal. Several studies on this subject have found the threshold value of inflation to be around 6 per cent for Nepal. Inflation is harmful to the economy after certain rate of threshold. Therefore, it is necessary to control inflation in order to address poverty as well as economic growth. Policies need to be put in place to keep inflation target range around the optimum inflation rate to accelerate the pace of economic growth rate and ensure that the negative effect inflation has on economic growth is minimized.