Producer prices rise 6.3% in March as farmers, manufacturers struggle with higher prices

• Highest since October last year
• Reflects supply chain bottlenecks faced by certain manufacturing sectors

Sri Lanka’s producer prices continued to rise in mid-single digits in recent months from their year earlier levels, with those in agriculture and manufacturing industries contending with the most increases during March, though the price index slipped from February levels. 

Sri Lanka’s producer prices measured by the Producer’s Price Index (PPI) rose by 6.3 percent in March from the same month in 2020, after rising 6.4 percent in February 2021, the highest since October last year, the data compiled by the Department of Census and Statistics showed. 

In January 2021, the prices rose by 4.5 percent, and since have accelerated as consumer demand suddenly surged starting from February as producers scrambled to add capacity, straining the 
supply chains.  

PPI is typically released with a 45-day lag and functions as an important macro-economic indicator as it serves as an indicator of short-term inflationary trends, though the index is not among the mainstay economic measures yet. 
Although being a lagging indicator, PPI provides insights as to how the prices have changed during the supply chains before they are reflected in consumer prices. 

It also reflects supply chain bottlenecks faced by certain manufacturing sectors, which is typical during times of spurt in demand for goods, raw material shortages or other delays in the logistical chain.   

  
In March, producers of agricultural goods and those in manufacturing industries saw their prices rising by as much as 10 percent and 8.9 percent respectively, from a year ago levels, reflecting those underlying reasons why shelf prices of some of the goods were higher in recent times.  

The other category, electricity and water supply, which is also used to compile the PPI, declined by 4.8 percent between the two periods, adding some counterweight to the overall index. 

Sri Lanka is a facing a bout of higher supplier and consumer prices as of late, eroding small business margins and the purchasing power of the end consumer.  

Among the agricultural production activities, which saw its supplier prices going up during March were growing of crops that  include cereal and other crops, growing of fruits, nuts, beverage and spice crops, and growing of vegetables, which recorded price increases of as much as 20.3 percent, 10.1 percent and 6.7 percent respectively. 

Meanwhile, the production of dairy rose by 9.8 percent from a year ago levels. 

The producer prices of animal farming and production of eggs declined by 4.9 percent and 12.6 percent in March 2021 from a year ago. 

Meanwhile, under manufacturing, majority sectors recorded price increases across their supply chains. 

Manufacturing of rubber and plastics, manufacturing of furniture, manufacturing of wearing apparel and manufacturing of base metals, of which prices rose by between a high of 20.5 percent and a low of 16 percent in the year through March 2021. 

Further, the prices of manufacturing of textiles and manufacturing of food and beverages, and manufacturing of electrical machinery and apparatus recorded price increases from mid to high single digit levels during the year through March 2021. 

Prices of manufacturing of coke, refined petroleum products and nuclear fuel, manufacturing of other transport equipment and manufacturing of tobacco products recorded declines.