Colombo inflation jumps to 18.7% in March reflecting impact of rupee float

• Food prices surge to an eye-popping 30.2% from 25.7% in February
• Core inflation accelerates to 13% from 10.9% in February

Inflation in the Colombo district jumped to 18.7 percent in the twelve months to March 2022 accelerating from 15.1 percent in February, as prices are seen charging ahead after the rupee was floated in the first week of March.
The impacts stemming from the Russia-Ukraine conflict also pushed global commodities prices higher substantially, led by the energy prices. 

While the inflation in the Colombo district is largely in line with expectations, the reading came a slightly below some of the hawkish bets on headline inflation to surpass the 20 percent level in March given the price shocks from the second week of March where prices of all commodities and services readjusted to reflect the new exchange rate. 

Meanwhile, commodities shortages have also given rise to a thriving black market, as there have been cases where fuel is sold at above the retail price. 

The rupee shed about 50 percent of its value in the past three weeks, sending the prices of some commodities from 30 percent to 300 percent within this short span. 

The so-called core prices measured barring the often-volatile categories such as food, energy and transport, climbed 13.0 percent in the twelve months to March 2022, accelerating from 10.9 percent through February.  

The food inflation measured separately showed that prices had climbed an exponential 30.2 percent in the twelve months to March 2022 due to aforementioned price revisions which happened in quick succession in response to the rupee float. 

The rupee float, while a welcome move was carried out badly as it wasn’t supported with a sizeable inflow of foreign currency, which otherwise would have contained the depreciation of the currency. 

As a result the prices readjusted to simply unbearable levels for the large majority in Sri Lanka. 

Meanwhile, the non-food inflation surged to 13.4 percent in the twelve months to March 2022 from 10.1 percent, predominantly reflecting the impact stemming from the transport subcategory. 

Given the anaemic growth in the economy and the hotter inflation, Sri Lanka has become a classic stagflationary case as these two together could lead to higher unemployment as companies lay off people when going gets tougher.