Inflation down on technicality, but food prices rise says govt statistics office

Inflation in Sri Lanka 6.8 percent in January


Sri Lanka’s headline inflation, the rate at which prices increase, as measured by the Colombo Consumers’ Price Index (CCPI), fell marginally to 6.8 percent in January 2011 from 6.9 percent in December, but this is due to a technicality called the base effect in statics, but prices, especially food prices, continued to increase.

"The rate of inflation as measured by the CCPI on a Year on Year basis decreased to 6.8 percent further in January 2011 from 6.9 percent recorded in December 2010, due to the high base prevalence in January 2010," the Department of Census and Statistics said yesterday (31).

"Sri Lanka’s 12 month moving Average inflation as measured by the CCPI settled in the month of January at a single digit figure of 6.0 percent for the eighteenth consecutive time since August 2009," the department said.

The 12 month moving average has risen continuously since reaching 3.1 percent in January 2010.

"On a year to year basis, the highest contribution to the overall increase of around 78 per cent came from food commodities which increased by 5 percent in January 2011. The combined effects of both domestically produced and imported food commodities contributed to the increase in the food sub index," the government statistic office said.

"Among the food commodities, vegetables, coconut and coconut oil which have significant weights in the CCPI basket recorded price increases on a year to year basis. Under the non-food category, the prices of gas rose by 8 percent while Petrol, Diesel and Kerosene Oil remained unchanged," the department said.

On a month-to-month basis, food items experienced increases in prices such as most varieties of vegetables, fish and sea food, red onions, green chillies and coconut due to bad weather conditions in the island and less supply to Colombo from main producing areas. However, rice prices have decreased due to more supply from main producing areas during the month of January 2011. On an average, expenditure value on items in food group increased by Rs. 442.20," the statistics office said.

With floods affecting the North and East in January, food prices are expected to increase further and its affects on the index would be seen in the months ahead, but market analysts, like the Central Bank, are confident this phenomenon would be temporary. However, the main concern these days remain as to how global commodity prices move.

The government has already moved to cut import duties on petrol and milk powder so that domestic prices could be maintained as they are. Petrol prices usually has no bearing on other domestic prices such as food, but the move to reduce its import tax was to avoid strain on the heavily subsidised diesel, widely used for transportation purposes.

Meanwhile, the Central Bank has said there was no need to tighten monetary policy rates at this stage based on inflationary pressures brought upon by the flooding. It fact, the Central Bank said there was room for more private sector credit growth without causing the economy to overheat.

The Central Bank and International Monetary Fund (IMF) believe, as highlighted previously in The Island Financial Review, there is room for interest rates to fall further in the medium term. However, rising global commodity prices could change this stance.

The Central Bank said it was committed to maintaining inflation within single digit levels, and with the government’s fiscal performance showing signs of improving this may be possible. However, as inflation means the rate at which prices increase, people continue to feel the burden of the rising cost of living.

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