Inflation rate decelerates further in August 2008.

The rate of inflation as measured by the Colombo Consumers’ Price Index (CCPI) on a year-on-year basis decelerated further to 24.9 per cent in August, 2008 from 26.6 per cent recorded in July, 2008. Moreover, the monthly Index indicated a reversal of the trend with a slight drop from 206.4 in July, 2008 to 206.3 in August, 2008 for the first time since March, 2007. However, the annual average rate moved from 21.9 per cent to 22.6 per cent between the two months, reflecting the cumulative effect of the increase in the Index during the preceding 12 months period.

The abatement of inflation which began in July, 2008 is expected to continue further during the remaining part of the year in response to the tight monetary policy stance adopted by the Central Bank as well as to the increase in domestic food production coupled with the moderation of world commodity prices due to improvement in supply.

Meanwhile, the underlying core inflation which measures the aggregate demand responsive to monetary policy covering price movements of non-food and non-energy items of the CCPI basket rose merely by 0.4 per cent in August, recording an annual average of 10.1 per cent and a point-to-point change of 17.4 per cent compared to 9.3 per cent and 17.2 per cent, respectively in the previous month. The marginal increase in the core inflation was mainly due to the increases in Furnishing, Household Equipment and Routine Household Maintenance (0.7 per cent) and Clothing and Footwear (0.6 per cent) sub categories. Although the core inflation has risen at a faster rate than the headline inflation due to one-off impact of adjusting transport prices, the two have been converging from July, 2008.

Increased supply of domestic agricultural produce mainly vegetables, coconut, coconut oil, eggs and rice (other than samba variety) contributed heavily towards the deceleration of the general price level in August. This was reflected by a decline of 0.4 per cent in the food sub index, which accounts for 47 percent of the total index. However, the total impact of this decline on the overall price level was offset by the increases in non-food categories mentioned above.