Months of deflation ends; October consumer prices pick up 1.7%

2 November 2015 03:45 am Views - 1016

Ending a three-month streak of falling prices, Sri Lanka’s general prices picked up by 1.7 percent in October 2015 from a year ago as a result of the increased food prices, the Census and Statistics Department data showed. 

The Colombo Consumer Price Index (CCPI), the measure used to gauge the monthly price movements, increased by seven index points to 182.1 in October.  “This increase was mainly due to the removal of the high base effect of downward administrative price revisions effected since September 2014. The recent price increase in several key items in the food category also contributed to the increase in year-on-year inflation in October,” the country’s Central Bank said releasing a statement. 

Sri Lanka’s headline inflation have been hovering around lower single digits since the new government removed taxes from essential commodities and cut the prices of goods and services. The annual average inflation in October remained unchanged at 0.7 percent, but is forecasted at 1.5 percent for 2015 and 4.5 percent in 2016, which is an increase from 3.3 percent in 2014.  However, core-inflation which excludes fresh food, energy, transport, rice and coconut, continued its increase to 4.4 percent in October from 4.2 percent in September and 3.9 percent in August. 

Sri Lanka’s private credit strongly rebounded during the second half due to historical low interest rates and August 2015 recorded a growth of 21.3 percent or Rs.64.7 billion from a year ago – the highest in 34 months. 

The cheap credit which fuelled country’s imports combined with the large outflows from the government securities market appears to be creating balance of payment pressure. 

Central Bank’s monetary policy targets inflation but keeps the interest rates artificially low through money printing when the rupee is under enormous pressure due to outflows.