The recent downward revision of residential electricity tariffs have eased the headline inflation for October, as it has come further down to historically lows of 1.6 percent year-on-year (YoY) from 3.5 percent in September, according to the Department of Census and Statistics (DCS) data.The government announced a 25 percent electricity tariff reduction effective from September 16 and the full monthly impact of this is reflected in t he consumer goods and services basket from October.The headline inflation number in Sri Lanka is approaching near ‘zero’ level, fearing a possible deflationary situation similar to now struggling European and Japanese economies.
However, Central Bank (CB) Deputy Governor Dr. Nandalal Weerasinghe ruled out a possible deflation situation in Sri Lanka at a recent seminar held at the Ceylon Chamber of Commerce.“We never want t o or no country would target zero inflation. That’s a very bad thing. That will have many adverse i mpacts on the economy. Zero inflation means that there is no inflation but that’s deflation,” he said.
The CB targets mid-term inflation between 3 to 5 percent.In October, the average annual inflation decreased to 3.8 percent from 4.2 percent in September. The CB boasts of maintaining single digit i nflation for 70 months in a row but the country’s academics and senior economists last week cast doubts over the economic data released by the DCS and CB. The Colombo Consumer Price Index fell to 179 from 181.9 a month earlier.October inflation was driven by the food index, which rose by 4.6 percent YoY, while the non-food index – where the energy prices are captured in – declined by 0.9 percent YoY.
“The combined effects of both domestically produced and imported food commodities contributed to the increase in the food sub index,” a statement from the DCS stated. The food items that experienced increases in prices were rice, eggs and coconuts, most varieties of vegetables, dhal, sugar and limes.
“During t his month, price decreases were noticed in sub groups of housing, water, electricity, gas and other fuels and transport.
The groups of food and nonalcoholic beverages, clothing and footwear, health and miscellaneous goods and services showed price increases during the month of October,” the statement further added.