June inflation surges on higher food prices, transport costs

• Records highest food inflation since June last year

Sri Lanka’s general prices accelerated in June on the back of higher food prices and transport costs resulting from the fuel price hike in May, as policymakers battle reining in escalating cost of living. 

Despite the higher base effects, the headline inflation measured by the Colombo Consumer Price Index (CCPI) rose by 4.4 percent during the 12 months to June, up from 4.0 percent in May, as the prices of many vegetable varieties soared amid the fuel price hike’s pass through effects.

On a month-on-month (MoM) basis, the inflation grew by 2.0 percent in June. 

Perhaps in an attempt to curb any more increases in consumer prices, the government last week reduced the price of the 12.5 kg domestic gas cylinder by Rs.138. 

However, some are of the view that the recent price reductions in administered commodities are an indication that the government is trying to regain its lost popularity ahead of some crucial elections. 

The CCPI is through which the monetary board widely watches the country’s general price levels, and policymakers decide on the course of the monetary policy based on the projected level of inflation under the current inflation targeting regime. 

Under inflation targeting, the monetary board raises interest rates to stem possible overheating of the economy.

Meanwhile, the food inflation in June surged 4.4 percent on a MoM, the highest since June 2017 and from 2.6 percent in May as the prices of many varieties of vegetables rose amid low supply due to the off-season and partly due to crop damages caused by persistent rains since May. 

Further, fish prices also rose sharply and so was the administered price of milk powder which contributed to the higher food inflation in the month.

The non-food inflation rose by 1.1 percent in June on a MoM basis from 0.5 percent in May mainly due to transport costs and partly due to utility costs. 
The biggest impact to the transport cost came from petrol and the increase in the bus fare. 

Meanwhile, the so-called core prices barring the effects of mostly volatile food and energy prices rose by 3.4 percent in June from 3.2 percent in May on an year-on-year (YoY) basis.  

Sri Lanka generates inflation by artificially keeping the rates lower printing money as people are on a borrowing binge on easy bank credit, mainly on consumption goods, as more and more money is chasing limited amount of goods and services. 

As the rupee has weakened in recent times, Sri Lanka is also importing inflation as most of the goods are imported at higher cost as the country pays more rupees to buy the same or more goods priced in U.S. dollars.