Deflationary pace slows in March

• Clear sign of dissipating deflationary conditions
• Prices decline 2.6 percent in March, slower than 4.2 percent drop in February
• Food prices rise annually,  but fall monthly in March
• Non-food prices decline annually, but the monthly prices marginally up 

The consumer prices as measured by the Colombo Consumer Price Index (CCPI), the mostly watched price gauge for March fell by 2.6 percent from a year ago, slower than the 4.2 percent fall in February.
This is a clear sign of dissipating deflationary impulses as the impacts of the previous cuts to energy and power are fading, while the lower base effects are starting to emerge.
The prices declined by 0.3 percent on a monthly basis, compared to a 0.2 percent decline in February. 
While leaving the key policy rate unchanged last week, the Central Bank said the current deflation caused by repeated cuts to power and energy will subside from March onwards and turn positive from the second half before reaching their five percent target by the year’s end.
It also reiterated that current rates are appropriate to bring inflation back up to their desired level in the absence of any supply shocks, either globally or domestically.
Sri Lankans have been on a deflationary spell for the last seven consecutive months. However, they are still grappling with the sharper price escalations that took place three years ago, also as a result of supply-side effects which were exacerbated by the rupee depreciation and thereafter by the higher taxes.
Official prices rose to as high as 70 percent in September 2022 before coming back down.
In March, food prices rose by 0.6 percent from a year ago, but the monthly prices fell 1.3 percent.
The prices of rice, which had been a contentious issue for many months, saw a decline for the second consecutive month in March, while the prices of coconut, vegetables, red onions, big onions, green chilies, and tamarind saw considerable price declines.
Meanwhile, non-food prices fell by 4.1 percent from a year ago, but the monthly prices rose by 0.2 percent.
Prices of house maintenance and reconstruction, consultations with specialists, and the like, rose during March.
In February, the price index was driven down sharply by the cut to electricity in January, but similar price declines were absent in March, causing the monthly rise in non-food prices.