Colombo inflation eases to 4.3% as food prices fall

Consumer prices in Colombo have slowed to 4.3 percent during the 12 months to August from 5.5 percent in July, recording the second consecutive monthly decline in headline inflation, as the food prices marked a significant drop in the month, the data from the Census and Statistics Department showed.

On a month-on-month (MoM) basis, the headline inflation in August declined by 1.7 percent after rising 0.2 percent in July. 

The prices of foods on a MoM basis fell fast by 3.7 percent as many items recorded decline in prices. Prices of vegetables, green chillies, sugar and dried fish saw steep declines in prices during August compared to July.

Meanwhile, on a year-on-year (YoY) basis, food prices rose by 5.6 percent, slower than a 8.1 percent YoY increase in July.

Economists say August has historically been a month food prices ease but this year August has seen sharper decline.

Sri Lanka this week kept its key policy rates unchanged after increasing them by 50 basis points in July as the authorities were worried of higher headline inflation fuelled by a steep growth in private credit.

Sri Lanka’s banking sector gave Rs.76 billion worth of credit to the private sector, accelerating from Rs.60 billion a month earlier, but the Central Bank expects credit growth to ease with the tightening measures already in place. In June, Sri Lanka’s prices rose by 6 percent YoY accelerating from a 4.8 percent YoY inflation in May.

Meanwhile, the non-food prices rose by 0.4 percent on a MoM basis from a 0.2 percent contraction in July as the increase in bus fares took toll.

On a YoY basis, the August non-food price inflation recorded 3.1 percent, slightly higher than 3.0 percent in July.

The core-inflation, the changes in prices other than the food and energy, also eased to 4.7 percent YoY from 5.8 percent growth in July. The moving average inflation accelerated to 3.1 percent from 2.7 percent in July, causing some concerns 
to the policymakers.

The Central Bank expects to maintain the headline inflation at mid-single digit levels during the rest of the year.