Real prices contradict sharp deceleration in inflation rate

„June inflation declines to 12%, from 25% in May, largely on high base effects, last year

„Monthly prices unchanged for two consecutive months as overall consumer prices haven’t budged at all during May and June

„Consistent monthly price declines in an inflation index will only cut sticker prices of goods and services

„Core inflation in June dops below 10% first time in 17 months

The food prices measured on a monthly basis rose for the second month in a row in June, albeit at a slow pace from a month ago, reflecting that the inflationary impulses still remain abound in the economy and the bulk of the heavy lifting in bringing down the annual headline inflation is done by the massively high base effects of last year.

Sri Lanka’s consumer prices, measured by the Colombo Consumer Price Index (CCPI), came down sharply in the 12 months to June 2023 to 12.0 percent, from 25.0 percent through May and over 50.0 percent two months ago.

However, the impact on consumers’ finances has been significantly less than what the official price indices projected.

In fact, the monthly prices stood unchanged for two consecutive months, as the overall consumer prices haven’t budged at all during May and June, the monthly changes in the CCPI index showed.

Since October of the previous year, Sri Lanka has experienced a continuous decline in annual inflation; however, starting in April, the pace of descent accelerated due to a higher statistical base, resulting from the hyperinflationary cycle that was set off in the country after the rupee depreciated by nearly 80 percent against the US dollar in March.

Although the sharp deceleration in prices measured annually is welcome, they make little to no impact on households that are stretched beyond limits from last year, in the absence of a persistent decline in monthly prices.

As a result, it will not influence in improving the lifestyles of the people and enhance their overall economic and social wellbeing.

Consistent monthly price declines in an inflation index will only cut sticker prices of goods and services they purchase and this hasn’t happened much in the recent past in line with the pace the inflation indices were coming down.

Inflation measured by the CCPI was less than one fourth in June from the levels seen just three months ago but the prices haven’t budged this much at all, except in the cases of energy and a few others.

This is why the prices measured by the so-called core inflation, which strips out the often-volatile items such as food, energy and transport, already touched a single-digit level of 9.8 percent in June from a year ago, from 20.3 percent through May.