Economists say the annual rate of inflation is the most sensible indicator of inflation which was reported as 20.3% in February 2009, down marginally from 21.6% the previous month despite point to point inflation entering single digits at 7.6% last month.
Deputy Director of the Institute of Policy Studies (IPS) Dr. Dushni Weerakoon pointed out that the CB’s monetary policy framework for 2009 is targeting an annual inflation rate to single digit figures, from 20.3% to around 9% by the end of the year.
Asked why prices of commodities have not also followed the downward trend on par with the declining inflation, Dr. Weerakoon said there are prices that are not that flexible downwards. She said one example is the recent reduction in gas prices although it has not translated to lower prices in food outlets. To some extent, Dr. Weerakoon said the inflation in 2008 was driven by increases in prices of agriculture products. The reduction in prices of those items along with the lower gas prices may be felt somewhere down the line. Some reduction in food prices is already being felt. Lower inflation means that purchasing power is improving and real salaries and wages, which would have eroded over the last two to three years and have not kept up with the annual rate of inflation, would also improve.
To some extent, Dr. Weerakoon said the inflation in 2008 was driven by increases in prices of agriculture products. The reduction in prices of those items along with the lower gas prices may be felt somewhere down the line. Some reduction in food prices is already being felt. Lower inflation means that purchasing power is improving and real salaries and wages, which would have eroded over the last two to three years and have not kept up with the annual rate of inflation, would also improve.
Dr. Weerakoon said the primary reason inflation has come down is due to the measures taken by the CB in 2007, in particular the significant tightening of monetary policy. “That is the reason why inflation has come down so far now, with a lag time period.” She added that the general economic downturn means there are deflationary indications and lower economic activity. In time, the global reduction in oil prices that will be passed down to the consumers will also keep inflation low.
Consumers say
Despite lower inflation, in particular point to point inflation which was 7.6% last month as opposed to over 20% over a year ago, most consumers still have not seen any significant reductions in their food bills. Supermarket shoppers in particular have reported that their average weekly grocery bill has increased by around Rs.1000 to Rs.2000 over the past six months. There have been some decreases in prices as of late but nothing significant. Those shopping in the pola’s and the markets say prices of common food items fluctuate either upwards or downwards but again, nothing significant. Some shoppers said they recently noticed some decreases in the price of onions and potatoes. |
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