Financial Times

Inflation falls in August

Inflation measured by the Colombo Consumers’ Price Index (CCPI) on a year-on-year basis, eased to 24.9 % in August from 26.6 % in July 2008, the Central Bank said last week.

Moreover, the monthly Index indicated a reversal of the trend with a slight drop from 206.4 in July 2008 to 206.3 in August 2008 for the first time since March, 2007. However, the annual average rate moved from 21.9% to 22.6% between the two months, reflecting the cumulative effect of the increase in the Index during the preceding 12-month period, the Bank said in a statement.

“The abatement of inflation which began in July 2008 is expected to continue further during the remaining part of the year in response to the tight monetary policy stance adopted by the Central Bank as well as to the increase in domestic food production coupled with the moderation of world commodity prices due to improvement in supply,” it said.

The underlying core inflation which measures the aggregate demand responsive to monetary policy covering price movements of non-food and non-energy items of the CCPI basket rose merely by 0.4 % in August, recording an annual average of 10.1 % and a point-to-point change of 17.4 % compared to 9.3 % and 17.2 %, respectively in the previous month. The marginal increase in the core inflation was mainly due to the increases in Furnishing, Household Equipment and Routine Household Maintenance (0.7 %) and Clothing and Footwear (0.6 %) sub categories. Although the core inflation has risen at a faster rate than the headline inflation due to one-off impact of adjusting transport prices, the two have been converging from July 2008.

Increased supply of domestic agricultural produces mainly vegetables, coconut, coconut oil, eggs and rice (other than samba variety) contributed heavily towards the deceleration of the general price level in August. This was reflected by a decline of 0.4 % in the food sub index, which accounts for 47 % of the total index. However, the total impact of this decline on the overall price level was offset by the increases in non-food categories mentioned above.

“With the availability of more local food supplies to the market with the onset of the harvesting season and the declining commodity prices in the world market including oil, further aided by the continued demand management measures adopted by the Central Bank may contribute to a further decrease in the inflation rate during the coming months,”

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