Producer prices up 8.6% in July, slowing from 10.3% in June

Sri Lanka’s producers across agriculture, manufacturing industries and utilities continued to experience near double digit prices through July 2021 continuing the momentum set forth from the beginning of this year as supply chain disruptions caused by the pandemic, higher global commodities prices and more recently the foreign currency shortage added to the woes by way of expensive input cost. 

Monthly changes in producer prices measured by the Producer’s Price Index (PPI) which measures the level of inflation before it hit the end consumer rose by 8.6 percent during the twelve months to July 2021, slowing from 10.3 percent it reached in June when fuel prices were raised. 

The PPI, the proxy for supplier prices measured on a Month-over-Month basis slowed down by 2.2 percent in July from June levels. 

The decline in prices, although not substantial, was a result of the 3.0 percent decline in the prices encountered by the broader agricultural sector and the 6.4 percent fall in the electricity and water supply sector prices from the year earlier levels. 

However, the prices of manufacturing activities rose by a sharp 10.8 percent in July 2021 from a year ago in a reflection of faster factory-gate prices caused by the aforementioned factors as cost of inputs of almost every sector climbed this year. 

The supplier inflation on the other hand provided a forerunner for the consumer inflation, which also rose by 6.8 percent nationally in the same month from a year ago, climbing to its     16-month high before slipping to 6.7 percent in August. 

Despite some slowdown in both supplier and consumer inflation was witnessed in the most recent months, it is yet to see the durability of the trend until more data comes out in that direction. 

During July, except under manufacturing of tobacco products, all other sub-sectors under manufacturing logged rising prices from a year ago levels.

Higher supplier and consumer prices are a global phenomenon this year as re-opening of economies after months of closure and lockdowns sparked a heavier demand for goods, straining supply chains while the higher shipping and logistics costs also add to the costs. 

Meanwhile the resurgence in virus in new mutations in Asian countries also interrupted supplies as Asia is the leading source market for many inputs or intermediate goods which go into manufacturing of final products. 

Further, the United States Federal Reserve is also charged with firing a commodities bubble globally due to its US$ 120 billion worth monthly bond buying programme started shortly after the pandemic first struck the US. 

The Fed this week indicated that it would start tapering the pace of bond buying from as early as this year before they start raising their benchmark rates towards next year, much earlier than they previously earmarked as they surpassed their inflation target of 2.0 percent.