Fuel price hike to result in 3% acceleration in inflation

Based on Central Bank projections, the government expects this week’s fuel price hike to add to 3 percent acceleration to inflation given its multiplier effect on key sectors of the economy.

Addressing the final Post-Cabinet briefing for the year, Cabinet Co-Spokesperson and Minister of Mass Media, Dullas Alahapperuma yesterday highlighted that the government was forced to increase fuel prices in order preserve foreign exchange due to the country’s dwindling foreign exchange reverses, which fell to around US$ 1.6 billion at the end of last month.

He noted that the decision to increase fuel prices was arrived following discussions between the Central Bank and the Ministry of Finance considering the monthly forex outflow of US$ 350-400 million on fuel imports. Moving forward, Minister Alahapperuma acknowledged the need of a permanent fuel pricing formula in order to avoid sudden price shocks to the consumer. 
The prices measured by the Colombo Consumer Price Index (CCPI) jumped to 9.9 percent in the twelve months to November as the increase in food prices accelerated to 17.5 percent, while non-food prices rose by 6.4 percent.

Alahapperuma noted that the Cabinet of Ministers in the next meeting would consider possible relief to hard-hit low and middle income earners by the fuel price hike, without divulging any details. 

Further, he called for greater use of renewable energy sources in order to lower the dependency on hydrocarbons.

Meanwhile, he stressed on strict financial discipline to overcome the present economic crisis of the country while outlining the need for national consensus.

Commenting on seeking the International Monetary Fund (IMF) support, Alahapperuma said that the government has not yet reached a final decision on it, although Cabinet Ministers expressed their clear and diverse views in relation to it during the past Cabinet meetings. 

However, the Minister recalled the role played by the IMF supporting the country to overcome a similar crisis faced in 2008-2009.