Inflation has picked up in October as domestic food production costs and prices of imported food items increased.

The rate of Inflation for the month of October had picked up to 1.4 percent from 0.7 percent in September while the annual average rate of inflation continued its decline to record 5.2 percent in October, the government said.

The point-to-point change in the rate of inflation, as recorded in the movement of the Colombo Consumers’ Price Index, was an increase of 0.4 percent from September to October with the index moving up to 209.4 from 208.6.

"The combined effects of both domestically produced and imported food commodities contributed to the rise in food prices. Prices of food commodities recorded increases due to the high cost of production of agricultural consumer goods such as rice, vegetables, eggs and coconuts," the Department of Census and Statistics said.

The department, which compiles and computes the country’s official inflation index, the Colombo Consumers’ Price Index, said the expenditure value on food items had increased by Rs. 92.48 during the month of October.

The Central Bank governor said average inflation by the year end is expected to be around 3.5 percent and remain at low levels throughout 2010.

The point-to-point change in the rate of inflation peaked at 28.2 percent in June 2008 on high oil and world food prices but has since been decreasing till it reached it lowest of 0.7 percent in September this year.

Since the beginning of the year the Central Bank has relaxed its monetary policy stance and cut policy interest rates and removed penal interest rates on overnight borrowings of the banking sector from the Central Bank as falling inflation created space for the regulator to attempt to bring down lending rates in a bid to stimulate the economy.

However, the banking sector’s response had been poor, forcing the government to intervene which resulted in state-owned banks slashing lending rates to as low as eight percent for selected sectors of the economy.