National inflation jumps to 6.4% in June

Sri Lanka’s national inflation, which captures price movements across all provinces, jumped to 6.4 percent during the 12-months to June 2016 from 5.3 percent in May, according to the data released by the Census and Statistics Department.

The increase in food prices have largely contributed to the acceleration in the national level prices, as the food price inflation was as high as 7.6 percent in June. But non-food inflation also remained high at 5.6 percent.
June 2016 inflation is the highest recorded since the release of the National Consumer Price Index (NCPI) in 
October 2015. 

The index value for all items rose by 2.4 index points during the month to 116.1, representing an expenditure value increase of Rs.794. 48 in the market basket.

The moving average inflation also rose to 3.1 percent in June from 2.7 percent a month ago.
The sharp increase in NCPI followed the increase in the Colombo Consumer Price Index (CCPI) for the same month, according to which the headline inflation rose to 6.0 percent yoy from 4.8 percent in May over similar reasons.   On a Year-on-Year (YoY) basis, the contribution of food commodities to inflation was 3.39 percent in June 2016, compared to June 2015.

“It is noteworthy that the contribution of vegetables and green chilies alone of the food group was 1.95 percent,” a statement from the department said.

Meanwhile, the non-food inflation was mainly pushed up by the price increases in health, alcoholic beverages, tobacco and narcotics, transport, miscellaneous of goods and services, communication and furnishing, household equipment and routine household maintenance. The 4 percent increase in Value Added Tax (VAT) from May 2, 2016 has had a considerable impact on both food and non-food prices. But the VAT has been now suspended by the Supreme Court.

Further, the mayhem caused by the floods in May and the harvest season coming to an end also have had a bearing mainly on food prices, as supply disruptions put pressure on the prices.
Sri Lanka’s monetary authority closely watches inflation and private credit growth to avoid possible overheating of the economy through interest rates.

Sri Lanka’s interest rates still remains artificially low through the Central Bank money printing and the money market is short of liquidity.

Meanwhile, according to the Finance Ministry proposals for next year’s budget, the government wants to maintain inflation at a moderate 4.0 percent in 2017.