ECONOMIST: PRICES STABILISING BUT TAXES WILL PUT PRESSURE ON HOUSEHOLDS

SRI LANKA’S National Consumer Price Index (NCPI) slowed year-on-year to 70.6 per cent in October after a record 73.7 per cent jump in September, the statistics department said on Monday (21).

Food inflation was 80.9 per cent in October, while non-food inflation was 61.3 per cent, the Department of Census and Statistics said in a statement.

Sri Lanka has been struggling with soaring inflation for nearly a year, partly triggered by its worst financial crisis in seven decades and an ill-thought out ban on chemical fertilizer implemented last year, which has since been reversed. “Prices will not go down, but they are stabilising,” said Rehana Thowfeek, economist at the Colombo-based Advocata Institute think tank. “The government is introducing fresh taxes and other measures to stabilise the economy. So households will continue to feel price pressure.”

Central Bank of Sri Lanka governor Nandalal Weerasinghe predicted that if the current trend of monetary policy was followed, inflation could drop to four per cent – five per cent by the end of next year. In an effort to tame prices and stabilise markets, the bank has raised interest rates by 900 basis points this year. Its final policy announcement for 2022 will be on Thursday (24).

The NCPI captures broad retail price inflation across the island nation and is released with a lag of 21 days every month.

The Colombo Consumer Price Index (CCPI), released at the end of each month, is more closely monitored. It acts as a lead indicator for broader national prices and shows how inflation is evolving in the biggest city of Colombo. The CCPI eased to 66 per cent in October, data showed last month.

In September, Sri Lanka reached a preliminary deal with the International Monetary Fund for a $2.9 billion (£2.43bn) bailout, but it needs to get its debt on a sustainable track and put its public finances in order before funds can be disbursed.

Last Monday (14), the government of president Ranil Wickremesinghe said $1.7 billion in loans taken from China’s Export-Import Bank by three key loss-making state-owned enterprises (SOE) – the electricity utility, Port Authority, and Airport and Aviation Services – would be considered government debt.

Taking the loans off their books will strengthen their balance sheets, which could make them more attractive to buyers or outside investors.

Wickremesinghe, who is also the finance minister, signalled the selling-off of five state-owned companies, including the national carrier SriLankan Airlines.

Proceeds from the “restructure” of the firms will be used to boost the country’s depleted reserves, he said, without giving estimates. “A glimmer of hope on emerging from the economic abyss is currently visible,” Wickremesinghe told parliament as he presented his first full budget.