Producers still grapple with near 100% increase in their costs despite some recent easing

• August power tariff revision could send another jolt to their costs 

Sri Lanka’s producer prices eased in July from more than doubling a month ago, but businesses still contend with nearly 100 percent increase in their prices from a year ago after commodities prices started rising last year before being exacerbated by the Russia-Ukraine war and the weaker rupee, which lost 80 percent of its value from the beginning of this year.

Producer prices which are measured by the Producer Price Index (PPI) soared by 95.4 percent in July from a year ago and eased from 102.3 percent surge seen in June ,which translated into nearly 70 percent increase in consumer prices. 

On a monthly basis such inflation rose by 4.7 percent from June, slightly cooling from 4.9 percent in June. 
Although it remains a lagging indicator, PPI measures the inflation faced by producers before it reaches the end consumer. 

In July, the Colombo Consumer Price Index rose by 60.8 percent and in August by 64.3 percent from their year earlier levels as higher producer prices were passed down to the end consumer via sticker price revisions. 
The two indices – producer and consumer prices – however reflected that not all price increases faced by suppliers were passed down to the end consumer, as part of the cost appears to have been absorbed at various levels of the supply chain. 

At the start of the current red-hot inflation cycle towards the end of last year,  suppliers largely had the pricing power to fully pass down the cost of their production as consumers remained relatively strong. 
But, that ability gradually waned when the inflation turned hotter and more entrenched as people lost their affordability. 

With consumer inflation running at nearly 70 percent, and the money becoming more expensive and difficult to come by, companies are reporting muted sales. This condition could be more pronounced in the current quarter ending in September. 
In July, the manufacturing sector costs rose the most at 101.1 percent over the same month in 2021, followed by the agriculture sector and the group consisting of electricity, gas, steam, air conditioning and water supply rose by 83.5 percent and 1.8 percent, respectively.

On a monthly basis too the manufacturing sector prices rose the highest by 6.1 percent, but the agriculture sector prices surprisingly declined by 4.5 percent from a month ago. 
The utilities group registered an increase of 0.3 percent. 
However, the utilities group could see a jolt into their cost in August, setting off another period of higher costs for the producers as the sharp increase in the electricity prices came into effect for the first time.