• Supplier prices ease by 75.5% in February from the 89% in January

Producer prices finally bucked the months-long inflationary spiral as prices declined in February from a month ago, signalling disinflationary impulses on consumer prices. 

Producer prices declined 0.5 percent in February from January after relentless advances across the supply chains pushing prices at one point to surpass 100 percent and briefly at those levels there for a couple of months last year. 

On an annual basis, the supplier prices rose by 75.5 percent in the twelve months to February 2023, easing notably from the 89.0 percent through January. 

The Producer Price Index measures the price pressures through the supply chain before such prices are felt by the end consumer, and hence such prices provide a bellwether for future consumer prices. 

Consumer prices slowed to 50.3 percent in the twelve months to March, down from a near 70 percent back in September last year, according to the Colombo Consumer Price Index. 

The Central Bank remains confident that the consumer prices would relapse to single digits by the end of the year. 
In February, prices in the agricultural sector supply chain made an about turn to decline 0.5 percent from January while the manufacturing sector inflation was zero between the two months. 

However, the utility category which includes electricity, gas, steam, air conditioning and water supply increased by 1.5 percent as the power tariffs rose for the second time in six months. 

Sri Lanka’s disinflation path is further supported by the appreciation seen in the rupee against the dollar and the improvement in the foreign exchange conditions in the domestic market which will relax remaining import controls and thereby increase the supply conditions in the market.

The recent bout of inflation was largely produced by supply constraints and global inflation and not from unrestrained demand. 

Hence, easing financial conditions and cooling global commodities prices could bode favourably for domestic supplies and inflationary conditions in the coming months.