National inflation hits fresh high in December amid soaring food prices

• Overall inflation hits 14% while food prices surge 21.5%
• Core inflation accelerates to 10.8% from 8.8 percent in Nov.

Sri Lanka’s headline inflation measured by the National Consumer Price Index (NCPI) hit 14 percent in the twelve months to December 2021— touching a fresh high from November’s 11.1 percent—the highest since the officials started compiling the broader index in 2015. 

The overall consumer prices rose 3.7 percent in December from November levels, accelerating from 3.1 percent a month earlier, again a fresh high for the month.  Inflation is a global phenomenon as is commonplace in almost every economy irrespective of its size, and according to Sarah House, a Director and a Senior Economist at Wells Fargo, a lender based in the US, the pandemic is squarely behind the inflation and would be a tough task to bring it down until the pandemic is brought under significant control. 

The Central Bank of Sri Lanka however stays on its ‘transitory’ narrative on inflation as it last week renewed claims of more mild inflation readings in the next few months as much of the inflation is caused by global and local supply chain troubles.  However, the Central Bank last week tightened monetary policy in a bid to contain any demand-driven pressures on prices as seen from the rise in core inflation. The core national prices, which are measured barring food, energy and transportation, accelerated to 10.8 percent in the twelve months to December 2021, from 8.8 percent in November reflecting the underlying price pressures in the economy. 

Higher interest rates and lower money supply and imports are expected to alleviate some amount of inflation impulses after the rate hike. 

However, supply side price pressures are beyond Monetary Board’s control.  According to NCPI, the food prices climbed 21.5 percent in the twelve months to December 2021, up from 16.9 percent in the previous month, while monthly prices also accelerated to 6.2 percent from 5.5 percent due to the increases in prices of vegetables, rice, and green chillies. Non-food inflation also rose by 7.6 percent in December from a year ago, while the monthly prices also increased by 1.3 percent from 1.0 percent on the back of price increases observed in restaurants and hotels, and alcoholic beverages and tobacco sub-categories.