Muted inflation masks impact of triple fuel hikes on households

The consumer prices in the Colombo district rose only a tad higher in March from the levels seen in February but did nothing to capture the true sky-high prices the households are confronting on a daily basis, due to the significantly higher fuel prices. 

The fuel prices were raised thrice during the month, sending the prices of everything, from the essentials to discretionary, higher by massive proportions.

Inflation, measured by the Colombo Consumer Price Index, the widely watched measure of consumer prices, rose by 2.2 percent in March from a year ago, accelerating from 1.6 percent in February. The prices measured on a monthly basis rose 0.3 percent, after declining 0.9 percent in February.

The official price index showed no indication of the astronomical prices the people are forced to foot every day, on everything, since the government raised the prices of fuel three times during March by at least a cumulative 35 percent. 

Adding to this, the government also raised the electricity tariffs, effective April 1, compounding the price pressures for the households.

While the fuel price increase was already having a cascading impact on the everyday goods prices, the electricity tariff hike this week sent further shockwaves across the supply chains.

When queried about inflation, the Central Bank sounded somewhat dismissive of the price pressures last week and just said it would reach its medium-term inflation target of 5.0 percent a quarter earlier than before.

Central Bank Governor Dr. Nandalal Weerasinghe said Sri Lanka has had much higher inflation at around 70 percent in the recent past. Sri Lanka’s headline inflation, according to the official indices, reached around 70 percent at its peak in September 2022, when the rising global commodities prices collided with the collapse of the rupee, elevated taxes, market-based pricing on energy and utilities and substantially higher interest rates.

While the next inflation print for April could be much hotter than the one for March, the current scenario reflects how far the official indices are detached from the ground level reality the households’ pocket books are feeling at the everyday grocery stores.

The March inflation print showed the food prices rising by 0.7 percent and non-food prices rising by 2.9 percent from a year ago levels, with the latter reflecting the impact from the fuel and gas price revisions that came along in March.