Colombo inflation up as higher fuel prices take root

• Food prices ease but still stay at double-digit levels
• Core inflation accelerates to 3.2% from 2.5% in June

Prices in the Colombo district were pushed further higher in July as people were seeing venturing out after a month long sheltering-in-place, spending on everything from travel to clothing to restaurant dining, while the food prices eased, though staying stubbornly at double-digit levels. 

Inflation measured by the Colombo Consumer Price Index (CCPI), rose by 5.7 percent in the twelve months to June 2021, accelerating from 5.2 percent in June, marking it the third consecutive month of rising prices.

Colombo inflation slowed down to 3.9 percent year-on-year in April in spite it being a high-spending festive month, and since then prices escalated every month. 

Consumer prices also rose by 0.5 percent from June levels, predominantly due to non-food items such as transport, clothing and restaurant dining as the economy was gradually being unshackled from the jobs and production killing virus-related restrictions.

However, this recent bout of price increase was caused by the burst in demand for services, is largely expected to be short-lived, provided healthcare sector bureaucrats do not hit the economy with any more restrictions.

The food inflation however appears a bit more persistent phenomenon as the prices were rising by around 10 percent since March this year, although some easing was seen in July. 
The prices of food rose by 11 percent in the twelve months to July 2021, decelerating from 11.3 percent in June, while such prices had declined by 0.2 percent when the change was measured on a Month-on-Month basis. 

It is yet to be seen if this is the beginning of an unwinding cycle of food prices, which until now have been soaring.

However, the International Monetary Fund Chief Economist Gita Gopinath last week in a blog post warned of persistent inflation in emerging and developing markets through 2022, triggered by continuously high food prices and their weaker currencies, which make imported goods expensive.  

The commodities, which managed to de-escalate food prices in July were, rice, green gram, sea fish, coconuts, coconut oil and vegetables among few others. 

The government and the rice millers recently reached an agreement not to exceed the guaranteed prices for paddy when purchasing at the farm gate by the latter, in a bid to stem the soaring rice prices seen during last four months. 

Supply chain bottlenecks created by virus related restrictions are also getting eased gradually, potentially softening the prices in the rest of the food value chain. 

Meanwhile, non-food prices rose by 3.2 percent in the year to July, accelerating from 2.5 percent in June while the month-on-month (MoM) prices jumped 0.8 percent reflecting the pass-through effects of the fuel price increase in June and the re-opening of the out-of home economy, though certain restrictions on the number of patrons inside certain settings still put a damper on them. 

Under the non-food basket, the price increases were seen in transport, restaurants and hotels, and clothing and footwear, reminding a deja-vu moment a year ago when the economy was reopened from a two-month long lockdown. 

Meanwhile, the so-called core inflation measured barring the often-volatile items such as food, energy and transport, rose by 3.7 percent in the twelve months to June 2021, accelerating from 3.2 percent in June.