Infationary Trends In Sri Lanka
Inflationary trends and forces behind inflation in past three years in Sri Lanka:
Submitted by Malkanthi Thenabadu
Introduction:
Economists define inflation as the rising of cost of accomplishing a certain level of utility by a consumer. This is measured using the New Colombo Consumer’s Price Index (CCPI (N)). The inflation rate for 2004 was 9.00 while for 2005, 2006and 2007 correspondingly were 11.0,10.00, and 15.8
Quoting the New Colombo Consumers’ Price Index, the analysis notes that the country has a history of high inflation, averaging around 11% year-on-year since 1990,
HSBC’s Global Research report says that “even by its own history, inflation in Sri Lanka is on the high side.’
The report said that since Sri Lanka is a net importer of food and imports its entire petroleum requirement, a large part of the increase in inflation can be explained by surging international food, commodity and oil prices. However, it is strong demand at home that has allowed retailers to pass those cost increases onto the consumer. Additionally, inflation ex-food and energy has been seen higher for well over two years, consistent with an economy operating above potential.
“In this report we have built a model to explain and forecast the trajectory of Sri Lankan inflation over the next 18 months,” the Bank’s research unit said, adding “Our model suggests that inflation is going to remain elevated for some time, with the peak around the end of the year and a decisive fall materializing only in the second half of 2009, assuming that international commodity prices level off and the Central Bank of Sri Lanka (CBSL) achieves its aggressive reserve money growth targets for 2008.”
Central Bank of Sri Lanka recently reported that for the fourth month in succession, the inflation as measured by the year-on-year change in the Colombo Consumers’ Price Index (CCPI), decelerated further in October, 2008.
At the same time, the core inflation, which measures the price movement of...
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