24 December 2018 10:05 am
Sri Lanka’s national inflation accelerated in November as the country’s high food prices further rose in the month pushing the overall prices by 1.0 percent during the last 12 months.
This is an increase from the 0.1 percent increase in the overall price index in October measured by the National Consumer Price Index.
Sri Lanka has extremely high food prices within the region and outside the region and the situation has further been exacerbated by the recent steeper fall in the rupee against the U.S. dollar as much of the consumer goods are imported.
“The increase observed in year-on-year inflation in November 2018 is mainly driven by the increase of the prices of food items. Year-on-year food inflation increased to -3.9 percent in November 2018 from -6.6 percent in October 2018.
However, year-on-year non- food inflation decreased from 5.8 percent in October 2018 to 5.2 percent in November 2018,” the Census and Statistics Department said.
Meanwhile, the core inflation measured by eliminating the mostly volatile items such as food and energy prices, rose 3.1 percent during the 12 months to October, slightly down from 3.4 percent in September. The policymakers not only create but fuel the inflation by monetary and fiscal stimulus through money printing to keep the interest rates artificially lower.
Easy money is the root cause of inflation and this is particularly true for Sri Lanka as policymakers have played cheap politics to manipulate by continuously printing money to pump into their populist agendas, which include distributing resources which the country doesn’t have and fund their ego boosting projects.
Hence a larger stock of money, which in pursuit of a small stock of goods and services, sends the overall prices up in an economy, which is called in economic parlance as ‘inflation’.
The Central Bank credit or money printing cannot bring economic prosperity to people and instead such activity impoverishes people as rapidly happening in Sri Lanka.
This has further exacerbated by the political patronage, nepotism and corruption, which favour a certain class of political henchmen and creating oligarchs killing the spirit of enterprise in others.
Singapore’s first finance minister Goh Keng Swee in an article published in 1992 said Singapore’s old guard did not believe that the Central Bank could bring in prosperity to Singaporeans. Instead he said prosperity comes through hard work done by Singaporeans at all levels of society as students, undergraduates or workers.
While Sri Lanka’s move towards inflation targeting system in setting monetary policy is a step in the right direction, necessary legislative changes require restraining the Central Bank monetizing the fiscal deficits created by policymakers.
Further, the government should cut down on its own profligate expenditure programmes and then it should develop its own borrowing power outside the Central Bank to meet its financing requirements.
This is why strong consensus is now building for the abolition of money printing central banks and for the setting up of currency boards in the style of Hong Kong’s, so that the central banks could not monetize the fiscal deficits created by the politicians and make people poor.