National inflation eases in August; core prices up

Sri Lanka’s national prices, measured by the National Consumer Price Index (NCPI), eased in August but the so-called core prices, which exclude the often volatile items like food and energy, rose. 

Sri Lanka’s headline inflation, according to the NCPI, rose by 2.5 percent during the 12 months to August, easing from 3.4 percent in July, as food prices declined although the non-food prices increased.

However, the Colombo Consumer Price Index (CCPI), which is compiled using the prices collected from the urban areas of Colombo, reflected an increase in the headline inflation to 5.9 percent for August, from 5.4 percent in July. 

However, the NCPI is most representative of the prices in the economy and is compiled using the prices collected from all nine provinces.   According to the national prices, the food prices in the basket have come down by 1.31 percent month-on-month in August.  The prices of vegetables, coconuts, fresh fish and rice among a few others have declined while the papaw, eggs, milk powder and dried fish prices among others have come down in August, from July. 

Sri Lanka’s egg prices have stubbornly remained higher for a couple of months now.  Meanwhile, the non-food inflation rose by 0.40 percent from July. 

The most price increases were seen in alcoholic beverages, tobacco and narcotics and transport sub-sectors, as arrack, cigarettes and beetle leaves prices rose sharply, while the petrol and diesel price increases lifted the three-wheeler and other modes of transport prices during the month. 

Sri Lanka has introduced a pricing formula for fuel since May and the petrol and diesel prices have since risen pushing up the prices of all other commodities at varying degrees. 

As the rupee has fallen sharply against the United States dollar, the prices of goods and services are expected to increase sharply, sending the inflation to higher single-digit levels.  With the December festive season nearing, there is a general tendency for prices to move up. But this year the impact could be intense.  However, as the market liquidity remains in deficit and the credit growth in check, the impact could be offset to a certain degree.  Meanwhile, the core prices under the NCPI accelerated to 2.7 percent during the 12 months to August, from 2.3 percent in July.  Further, the annual average NCPI core inflation declined to 2.5 percent in August, from 2.7 percent in July. 

If the forthcoming budget pumps in extra demand into the economy, economists opine that things could become worse, driving the inflation further higher amid the crashing rupee. 

Last week, the Cabinet Co-Spokesman and Health Minister Rajitha Senaratne said the forthcoming budget would contain proposals to give more economic breathing space to the masses— an indirect acceptance that the ordinary citizen is now burdened with endless economic hardships.