• October inflation in Colombo accelerates to 7.6% on increased food and non-food prices
• Overshoots CB’s desired inflation band of 4-6% 
• Food prices accelerate to 12.8% from 10% in Sept; non-food prices to 5.4% from 3.8% in Sept.
• Core inflation surges to 6.3% from 5% in Sept.

Inflation in the Colombo district surged in October after the government lifted price controls on many essentials while there were clear effects on prices from the easing of lockdowns as people ventured out for outdoor dining and other recreational activities after months of being hunkered down due to virus fears and related restrictions. 

The overall headline prices as measured by the Colombo Consumer Price Index (CCPI), the mostly used gauge of consumer price volatility in the economy, reached a four-year high of 7.6 percent in the twelve months to October 2021, from 5.7 percent 
in September.  October prices overshot Central Bank’s desired inflation band of 4 to 6 percent as widely expected due to the first time effect that came from the surge in prices of some of the essential items such as milk powder,  

cooking gas and rice during October when the months-long price controls, which created painful shortages were lifted.

On a month-on-month (MoM) basis too, the pace of overall price increase accelerated to 1.9 percent from just 0.4 percent in September over August.  While there could be some easing in the prices in November relative to October, which became an outlier due to aforementioned reasons, Sri Lanka is entering the busy year-end festive shopping season, which typically is characterised by higher inflation due to demand surge. 

However, what could make a difference this year is the supply side constraints due to shipping and logistical bottlenecks which appear to linger much longer around the world as supply could not keep pace with the extremely strong pent-up demand created by stimulus measures unleashed around the world.  

Economist around the world do not expect the current blockage in the supply chains to ease until middle of next year, potentially extending though early 2023, meaning that inflation could persist somewhat longer than expected by those who considered it to be ‘transitory’ around the world. 

In Sri Lanka, the egg suppliers last week cautioned of supply issues faced by them due to the sudden surge in demand after the end of lockdowns and the difficulties in finding poultry feed, a key ingredient in the industry, due to import controls. Meanwhile, the so-called core prices, which are measured barring the impact from the often-volatile items such as food, energy and transport, also surged to 6.3 percent in the year through October 2021, from 5.0 percent in September. 

The increases in food prices accelerated to 12.8 percent from a year ago from 10.0 percent in September due to first time effect from the substantial upward price revisions in many essential food items as mentioned earlier. 

Milk powder had the biggest impact on the October food price index due to its steeper price increase while all varieties of rice, bread and buns, chicken and sea fish, coconuts, vegetables, turmeric powder, lime and the likes rose in prices from September to October. Prices of green gram, dried fish, coconut oil, fresh fruit, potatoes and sugar among a few others came down. Meanwhile, non- food prices continued to climb in October posing significant concerns for the policy makers to keep the overall prices in check as the gradually re-opening economy reactivates many activities, which the people and businesses had put off during the lockdowns. 

Such prices rose by 5.4 percent in the twelve months to October, accelerating from 3.8 percent up to September while the monthly prices jumped 1.5 percent from 0.6 percent increase in September. 

All items in the non-food basket registered price increases with sub-categories such as LP gas and spending in restaurants and hotels recording the highest price increases in the index in October compared to September.