National inflation up 6.3% in June on higher food prices

Sri Lanka’s national inflation, a broader measurement of changes in consumer prices covering all the provinces, increased by 6.3 percent during the year to June 2017 as increased food prices outpaced the increase in non-food prices.

However this marks a slight slowdown in prices from the previous months as the countrywide consumer prices in May went up by 7.1 percent on a year-on-year basis. 

Nevertheless, on a month-on-month basis, the prices in fact edged up by 1.3 percent mostly due to rising food prices as the prices of many staples like rice, vegetables, fresh fish, dried fish, chicken, red onions, green chilies, tea, limes and garlic, rose. 

But the prices of coconut, coconut oil, eggs, big onions, banana, papaw and tamarind eased, a statement released by the Department of Census and Statistics said.

Although food inflation on a year-on-year basis in June came down from 10.6 percent to 8.6 percent, on a month-on-month basis, there has been a sharp increase from 1.0 percent to 2.9 percent. 

But the non-food inflation has virtually remained stable recording a year-on-year growth of 4.4 percent (4.5 percent in May), while the prices on a month-on-month basis eased to 0.1 percent in June from 0.3 percent in May. 

This is predominantly due to some sharp decrease in cost of health over the month— though quite contradictory to the reality— which managed to offset the increase in prices of furnishing, household equipment and routine household maintenance’, ‘miscellaneous goods and services’, ‘alcoholic beverages, tobacco and narcotics’ and ‘clothing and footwear’. Meanwhile, the so called ‘core-prices’ where the changes in prices measured excluding the often volatile categories such as food and energy, rose by 4.1 percent over the year through June, 0.6 percent dip from a month ago.   

In March, Sri Lanka’s headline national prices peaked when it hit 8.6 percent year-on-year and the core national prices reached a high of 7.1 percent in February prompting the Central Bank to raise the policy interest rates by 25 basis points. But what is mostly watched inflation gauge by the Monetary Board in determining the interest rates of the economy is Colombo Consumer Price Index (CCPI), which rose to 6.1 percent in June on a year-on-year basis from 6.0 in May. June’s core prices under CCPI rose by 5.1 percent in the same month easing from 5.2 percent in May on a year-on-year basis all due to higher food prices. 

This demonstrates that Sri Lanka does not stand to benefit from the globally low commodity prices as the inflation stays higher.

Although prices have since been easing albeit slowly, the International Monetary Fund (IMF) last week sent a strong message to the country’s Central Bank asking to stand ready to jack up interest rates if inflation and private credit failed to slow down.  

Sri Lanka’s money supply and private sector credit remains still over 20 percent, significantly higher than what the authorities desire.