National inflation hits fresh high in March as prices gallop 21.5%

• Food inflation flirts near 30% 
• Non-food sharply accelerates to 14.5% 
• Core inflation surges to 17.3% from 14.1%

Sri Lanka’s consumer prices measured by the National Consumer Price Index hit a fresh high in March 2022 as the headline prices soared 21.5 percent over the same month a year earlier reflecting that the country has fast entered into a hyper inflationary era characterised by daily increases in sticker prices in goods on supermarket shelves and fuel at the pump.   

The broader index surged 17.5 percent in the twelve months to February 2022 and the March surge wasn’t at all surprising given the rapid pace the prices of all commodities from energy to staples to discretionary to services climbed multifold since the rupee was floated on March 7. 

The rupee has since fallen in value against the dollar by 70 percent, but the dollar liquidity hasn’t still been found in the domestic foreign exchange market, sending worrying signals across markets that the current surge in prices aren’t yet done and several more rounds of price increases are yet to occur. 

Meanwhile, the national consumer prices measured monthly changed 2.9 percent in March from 1.1 percent a month earlier reflecting this fast change in prices as manufacturers and vendors are fully passing on their costs to the end consumers. 

Meanwhile, the so-called core prices measured barring the often-volatile items such as food, energy and transport, surged 17.3 percent over the last twelve months, accelerating from 14.1 percent through February. Core inflation measures the underlying inflation in an economy. 

Steve Hanke, a neo-classical economists and a vehement proponent of currency boards in place of central banks put Sri Lanka’s headline inflation at a whopping 120 percent in the year through April 20. 

The Monetary Board on April 8 raised key interest rates by an unprecedented 700 basis points to crush demand, which they believe the key reason for the current inflation bout. 

Meanwhile, the food inflation rose by 29.5 percent from 24.7 percent as finding basic food items to feed a family is now literally a nightmare as the prices are daily being adjusted upwards to reflect the higher dollar against the rupee, which has now gone to the pits.

Former Central Bank Governor Ajith Nivard Cabraal this week defended his move to float the rupee on March 7 as he said it was a collective decision by the then Monetary Board which is even continued by the current members led by the new Central Bank Governor Dr. Nandalal Weerasinghe. A deeper look at the food inflation under the NCPI showed that except banana, vegetables, big onions, potatoes, red onions, green chillies and limes, everything else in the food basket rose in prices in March.  

Meanwhile, all subcategories under non-food inflation rose in March with transport prices recording the highest surges with back-to-back increases in fuel prices to reflect the weaker rupee.  The fuel prices have been again revised in April twice thus far and some analysts say there could be further upward revision of prices.