Lower inflation over the past few months has given some relief to the monetary authorities to relax the country’s tight monetary policy stance in the recent past, senior economist Dr. Sirimal Abeyratne said.
Analyzing the latest point-to-point inflation figures which decreased to 0.9% in August 2009 from 1.1% the previous month according to the Colombo Consumer Price Index (CCPI), Dr. Abeyratne said world commodity prices declined sharply in the recent past due to the economic recession but have remained relatively stable over the past three months.
There is also a decline in domestic demand coming from the private sector. Against this backdrop, domestic prices have remained stable, also due in part to favourable weather conditions to domestic food production.
Dr. Abeyratne explained that prices of individual commodities can move in different directions but the reduction in the average inflation rate does not mean a decline in general price levels. For example, point-to-point inflation at 0.9% means that the general price level in August 2009 has increased by 0.9% compared to price levels in August last year. In that sense, Dr. Abeyratne said there is no general reduction in the cost of production or the cost of living.
Dr. Abeyratne said he sees no reason for any price hikes over the next few months. One added advantage is the anticipated agricultural revival in the North and East.
However, with the global economic recovery on the way, world prices may slowly rise. If this happens, the authorities may have to monitor the domestic policy impact on the price level. He added that if the external pressure on the price level is due to rise, monetary expansion and increased government demand needs to slow down to maintain price stability.
A press release from the Department of Census and Statistics (DCS) on the latest inflation figures stated that the price of food commodities showed decreases due to the low cost of production of agricultural consumer goods, especially rice, vegetables, fish and seafood from main producing areas from July to August. On average, expenditure on items in the food group decreased by Rs.254.13 while retail prices of rice, most varieties of vegetables and most varieties of fresh fish decreased due to increased supply from the main producing areas.
Sri Lanka’s 12 month moving average inflation was 8.5% for August 2009, down from 10.4% in July. The DCS said it was the first time in two and a half years since November 2006 that the 12 month moving average was in single digits. |
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