January inflation up 3.2% on higher food prices

The headline inflation for the month of January rose 3.2 percent year-on-year (yoy) due to higher prices of both local and imported food items, Department of Census and Statistics (DCS) data showed.

Supply disruptions of certain vegetable varieties from flood-stricken areas mainly contributed to the food prices being higher during the month.

Sri Lanka’s headline inflation has been rising from December (2.1 percent yoy) since it fell to over 5 year-low of 1.5 percent yoy in November, signalling a possible deflation situation.

The Colombo Consumer Price Index (CCPI) increased by 3 index points or 1.67 percent monthon-month to 183.2. Core inflation which measures the underlying inflation of the economy removing the products which have had the largest price changes (highly volatile) has however declined to 2.1 percent from 3.2 percent in December 2014.

Meanwhile, the annual average inflation was 3.2 percent in January, and the Central Bank targets 3.0 percent for the entire year. The newly appointed Central Bank Governor, Arjuna Mahendran last week decided to maintain the policy rates, citing benign price pressures and healthy economic growth.

But the then main opposition – UNP (now in power) disputed the economic data published by the DCS and the Central Bank, asserting that the numbers were massaged to show a rosy economic picture. The prices of the basket of food items in the CCPI rose by 1.8 percent (or Rs.908.14) on a monthon-month basis while the non-food items basket declined by 0.13 percent (or Rs. 66.34) resulting in a net increase of 1.67 percent or Rs.841.80 in January.

Non-food inflation was dragged down by the reduction in utility prices such as housing, water, electricity, gas and transport as energy prices were again reduced in the latter part of January after the reduction of prices in December.

With further slashing of prices of 13 food items and energy and utility prices from the unity government’s interim budget, a section of economists in the country believe the inflation will further ease, providing more room for maneuverability.