October inflation unchanged at 4%

• Recent removal of import taxes on selected commodities yet to soften food item prices  

Inflation in Colombo district remained stable in October from a month earlier as food prices eased while non-food prices edged up.

Inflation measured based on the Colombo Consumer Price Index (CCPI), which captures changes in the prices in the Colombo district, rose by 4.0 percent during the twelve months to October, which is same as the price increase recorded in September. 

Meanwhile, the so-called core prices, measured barring the often-volatile items such as food and energy, rose by 3.0 percent during the twelve months to October from 2.9 percent in September.  

The Monetary Board left key policy rates unchanged at its 7th meeting held on October 22 amid benign inflation expectations in the medium term, as demand pressure remains muted. The Central Bank maintains a mid-single digit inflation target of 4 to 6 percent for this year. There were warnings over possible spike in inflation caused by the excessively supportive monetary and fiscal policies unleashed since the end of March to soften the pandemic’s economic impact. But the still modest growth in private sector credit and tempered imports keep such risks mostly at bay. 

Eventhough the private sector credit picks up, if such credit is spent on productive sectors of the economy, such credit has limited potential to create high inflation.  Meanwhile, food prices rose by 10 percent during the twelve months to October, easing from 11.5 percent in September while the prices on a month-on-month basis rose only by 0.3 percent from 1.6 percent in September.  The removal of import taxes of selected commodities from dhal, canned fish, big onions and sugar from mid-October has yet to make a meaningful impact to the prices.

Meanwhile, prices of big onion, dhal, samba rice, coconut, sea fish, turmeric powder and a few others increased during October from September while prices of chicken, eggs, banana and papaw, potatoes, sugar and lime decreased. 

The increase in non-food prices accelerated to 1.3 percent in October from 0.9 percent in September measured on a year-on-year basis, while the prices on a MoM basis remained unchanged in October from an increase of 0.2 percent in September. 

Items such as clothing and footwear and expenditure on hair cutting and shaving charges, rose as people visited fashion stores and beauty parlors as they continued to spend on personal grooming after coronavirus related lockdowns prevented them from visiting such places for months earlier.