October inflation increases 6.7%

1 November 2013 03:35 am Views - 4031

Sri Lanka’s cost of living rose 6.7 percent in October from a year earlier, accelerating from 6.2 percent in September, according to the Department of Census and Statistics data.

The Colombo Consumer Price Index rose to 176.1 in October from 175.8 a month earlier, the date further showed.

October inflation figure reversed the recent declining inflation trend since August and is the highest in four months.

However the 12-month moving average continued its downward trend in October which declined to 7.6 percent.

“Spike in October inflation came even before the economy felt the impacts of last month’s monetary easing, and it will be interesting to watch how the prices will behave in the next two months,” an economist said on the condition of anonymity.

However private sector credit still remains subdued despite the banks’ lending rates on the decline.

It was only fortnight ago the Central Bank cut its key policy rates further to the lowest since 1999, citing inflation is under control.

“The main risk we had with the inflation seems to be under fairly good control and that means we can now take a more bullish view about growth,” the CB Governor Ajith Nivard Cabraal said after the surprise rate cut.

Many economic think tanks and multi-lateral agencies including the International Monetary Fund warned of further monetary easing over fears of overheating the economy.

“In the light of the risks facing Sri Lanka, the mission recommends the policy rates to remain on hold, which will also give time to assess the impact of recent easing,” said IMF Mission Chief for Sri Lanka Todd Schneider during his recent visit.

 With the government’s spending at its highest levels in the recent months particularly in the run up to the Commonwealth Heads of Government Meeting and already raised energy and transport prices gaining traction, economists have warned of potential spiraling inflation in the months to come.