Colombo inflation rises to 2.4% in July as base effects wane

Inflation in the Colombo district came in at 2.4 percent in July from a year ago, slightly higher from June’s 1.7 percent, as the favourable base effects are dissipating.
However, the prices measured on a monthly basis declined 0.5 percent in July from the June levels, as the food prices softened while the non-food prices declined, on the back of the somewhat sharp downward revision to power tariff, followed by the fuel prices earlier in the month.
The Central Bank last week expressed confidence that the risks to inflation in the medium term are evenly balanced in the absence of any exogenous events. Therefore, it maintained its 5 percent medium-term inflation target and wasn’t worried in cutting rates by 25 basis points.

The Central Bank sees greater space still available for credit to ramp up and the economy to accelerate, without risking the inflationary pressures.
Despite the lower inflation readings recently, Sri Lanka’s consumers appear to be still under strain, after they got hammered by over 70 percent inflation back in 2022 and the repeatedly raised taxes to exponential levels, after further eroding their disposable incomes, in what could be termed as the most counter-intuitive policies.
The July inflation print showed the food prices rising by 1.5 percent from a year ago, slightly higher from the 1.4 percent increase in June.
But the food prices measured monthly slowed substantially to 0.1 percent in the month, from the 2.8 percent increase between April and May.
The price increases in most staples during the month were offset to a greater degree by the declines in the prices by the other staples.

Meanwhile, the non-food prices, which contributed mostly to a softer reading in July inflation, was up 2.8 percent from a year ago, accelerating from 1.8 percent in the year through June.
But what was most notable was the 0.7 percent decline in the non-food index, predominantly due to the sharp cut in electricity tariffs, followed by the downward revision in the fuel and gas prices.
However, there won’t be another follow up price revision in August for gas, the authorities announced.
Meanwhile, the so-called core prices, measured excluding the often-volatile items such as food, energy and transport, recorded 4.4 percent for July from a year ago, which is unchanged from the June reading.