Supplier inflation declines but consumer prices remain up

• Manufacturers and traders retaining the benefit of cost declines, as evident in the contrast between supplier and consumer prices

May’s supplier inflation has shown an unexpected decline, both on an annual and monthly basis, reaching more favourable levels. 
However, despite this decrease, the prices of most goods have remained resistant to change, indicating that producers and traders are reluctant to pass down the reduced costs to end consumers, instead opting to increase their profit margins.
The official suppliers’ prices which are measured through the Producer Price Index logged a softer reading of 10.4 percent in May over the same month last year, while the prices measured on a monthly basis fell by 2.6 percent from the levels seen in April.

Producer prices measure the inflation before it reaches the end consumer.  
The breakdown of producer prices across the three main categories showed that prices in the agricultural value chain had softened to 12.0 percent from a year ago, while manufacturing prices have decelerated to 7.0 percent in the year through May 2023. 
The prices of the utility sub-sector which captures electricity, gas, steam, air conditioning and water supply, soared 149.7 percent in May over the same month last year. This reflectd the back-to-back increases in electricity, gas and water prices which kicked off in August last year. 
The recent downward revisions in electricity and gas are yet to reflect in the index. 

Monthly prices, which are a better predictor of future prices, showed that agricultural prices had fallen by 3.2 percent while the prices in the manufacturing supply chain had declined by 2.6 percent between April and May. Utility sub-category rose by 1.0 percent. The price decline in the agricultural value chain hasn’t translated into the lower vegetable, poultry and dairy prices at the shelf as the Sri Lankans are paying exorbitant prices for these three commodities and the many households have completely given up the latter two after the economic crisis struck their household budgets last year. 
May supplier prices which are usually reflected in the June consumer price index showed that prices of chicken had risen substantially from their already elevated levels.