Inflation cools in February signalling easing price pressures

• All eyes now on next week’s policy meeting 

The consumer prices, measured based on the broader inflation index, pointed to softening prices from the recent highs reached in January, while the prices measured on a monthly basis, in fact, fell into deflationary territory, largely due to the ameliorated food prices in February from a month ago.
The consumer prices measured based on the National Consumer Price Index decelerated quite notably to 5.1 percent in the 12 months to February 2024, from 6.5 percent reached in January. The monthly prices declined by 0.2 percent, after rising 3.0 percent a month ago.

The latest consumer price data pointed to that the recent spikes seen in the prices, predominantly in basic food like vegetables, in response to both the Value Added Tax hike and also the supply chain snags, caused by the extreme weather at the start of the year, are receding and returning to normalcy.
However, certain economic analysts have projected somewhat higher inflation in the second half of the year, given the lower base effects, as inflation started falling sharply last year from its second half.
With the back-to-back soft inflation reports, all eyes are now on the coming monetary policy meeting next week, where expectations are running high for a rate cut. Earlier, the Colombo Consumer Price Index, the officials’ preferred inflation gauge, eased to 5.9 percent, from 6.4 percent in January.
The rise in the yields in the government securities in the last four weeks and the resistance in the lending rates lately could also skew the Monetary Policy Board to deliver another rate cut, prior to the elections and many other events that could muddle the conditions, which could warrant a rate cut by that time.The Central Bank hasn’t moved since November, when it last cut the policy rates by 100 basis points. Breaking down this week’s inflation print, the food prices showed declining by 1.2 percent in February from a month ago, when they rose by 2.6 percent, while they were up 5.0 percent, from 4.1 percent measured annually.
On the non-food side, the monthly prices decelerated to 0.5 percent, from 3.2 percent in January, while the annual prices too slowed to 5.1 percent, from 8.5 percent.
Meanwhile, the core prices, measured barring the often-volatile food, energy and transport, inched up to 2.7 percent in February, from 2.2 percent in January.