Sri Lanka’s urban middle class inflation down 10.7% in March

Sri Lanka’s Urban Price Index (UPI), a measurement of the inflation level of an urban middle income class household, as measured by an independent research house for March has come down by as much as 10.7 percent from a year ago mainly due to price declines in transportation, communication and energy.

The research arm of Capital Alliance Limited, a full service investment bank (CAL Research), took a sample family consisting of four members of which two working members earn a monthly household income of Rs.80,000.

CAL Research further took a basket of goods consisting of 36 individual goods and services, representing a wider range of consumption by an urban middle class household but left out health, education and accommodation as the first two are provided free-ofcharge and latter, for more objective analysis.

On a year-on-year basis, food and beverage prices increased by 3.8 percent while the transport, communication and energy prices declined 22.2 percent.

On a month-on-month basis, however food and beverage prices declined by 3.6 percent in March but the transport, communication and energy prices edged up 1.9 percent due to shorter electricity billing cycle in February.

At the national level, Sri Lanka’s headline inflation in March declined to 0.1 percent from a year ago from 0.6 percent in February due to the moderation of food prices, raising fears if the country is going towards a possible deflation, a situation which is difficult to reverse as seen in Japan and Europe.

“Prices of most vegetables decreased during the month as supply constraints that prevailed in the beginning of the year eased,” CAL Research said.

The interim budget passed in the first week of February 2015 slashed taxes of 13 commodities while energy prices were further reduced in a bid to deliver election pledges, but the country is running in to an acute fiscal slippage before the end of this fiscal year as many of the government’s revenue targets are uncertain to materialize.

Sri Lanka’s way of measuring inflation at the national level in recent times have come under flack due to the Colombo Consumer Price Index (CCPI), having the base year of 2006/07 failing to reflect the price movements of all the products consumed by the consumer today.

The Department of Census and Statistics said it would change the basket of goods and their weights of the CCPI from this year, based on the household income and expenditure survey – 2012/13 to better reflect the changing consumer patterns of the Lankans.