Colombo inflation declines to 25.2% in May largely on higher base effects

• Consumer prices still remain at stubbornly high levels leaving cost of living still a real issue for households 

The consumer prices measured by the Colombo Consumer Price Index fell sharply in May, the second consecutive month such prices cooled by an outsize amount since the current disinflation path began in October last year. 
The consumer prices rose by 25.2 percent in the 12 months through May, down from 35.3 percent through April, reflecting a faster decline in the inflation print in the last couple of months.
The prices measured monthly however remained unchanged from a month earlier.  
Sri Lanka’s consumer prices peaked at near 70 percent in September last year when a mix of factors from the free fall in the rupee against the dollar, higher taxes, higher interest rates and commodities shortages came to a head. 
But the prices started moderating thereafter, due to weak demand, equally weak supply conditions and the gradually easing foreign currency conditions in the domestic market. 
In fact, the rupee started appreciating notably since around March, which became more pronounced in May, resulting in easing of prices of certain imported commodities since lately. 
Despite the recent gains and the months-long disinflation path reflected by the official price indices, the prices of almost all commodities still remain at elevated levels as disinflation is mainly caused by the higher base effects last year. 
The prices set off to runaway levels from April last year, following the devaluation of the rupee. 

The Central Bank is forecasting single-digit inflation by the end of the year. 
Inflation is cooling globally too, in response to both easing supply and demand conditions.
Colombo food prices rose by 21.5 percent in the 12 months to May, a sharp moderation from 30.6 percent 
through April. 
The monthly prices however inched up 1.7 percent, reflecting still persistent inflationary impulses in the food supply chain compared to a decline in prices by 0.1 percent in April. 
The non-food inflation declined sharply to 27 percent in May, from 37.6 percent through April while the monthly prices declined by 0.8 percent continuing deflation set off in April. 
The non-food inflation appeared somewhat sticky but the downward price revisions in fuel and gas prices propelled the recent disinflationary momentum. 
The so-called core inflation, which is measured excluding the often-volatile food, energy and transport segments, rose by 20.3 percent in the year through May, down from 27.8 percent through April.
Although the inflation rate will continue to fall, it is unlikely to make tangible improvements in the people’s living standards until their incomes rise substantially because much of disinflation is due to higher base effects and extremely weak demand conditions.