Inflation is expected to ease in the period ahead from 10.7% in January 2009 and recede towards a single digit level on a point-to-point basis from the next month, the Central Bank (CB) says while a top economist noted that such a fall could be temporary. International prices of most commodities have declined in the wake of lower demand emanating from the global economic slowdown and pressure on prices originating from imported items is likely to ease in 2009, the CB said.
Economist Dr. Sirimal Abeyratne said there is some truth in the CB statement, particularly on the declining price of commodities around the world and declining inflation in other countries as well but notes that inflation here is still higher than other countries in the region. He said the CB has continued to follow a tight monetary policy, another reason for declining inflation levels but warned that the decrease in inflation could be temporary unless the macroeconomic situation in the country does not improve.
The government still has a huge budget deficit and there is a balance of payments problem.
The CB stated that inflation declined markedly in January 2009 by decelerating to the lowest rate of 10.7% year on year from its peak of 28.2% in June 2008. According to the Colombo Consumers' Price Index (CCPI), annual average inflation also decelerated to 21..6% in January 2009 compared with 23.4% in October 2008.
The CB stated that the general price level continued to fall for the fourth consecutive month with the Index falling from 203.7 in December 2008 to 203.1 in January 2009. According to the CB, the contribution to the monthly decrease in the Index arose mainly from sub categories of transport, housing, water, electricity, gas and other fuels and communication. However, the full impact of these declines was partly off-set by price increases in sub categories, recreation and culture, and health.
The CB further stated that core inflation dropped marginally by 0.2 percentage points on a year-on-year basis from 15.7% in December 2008 to 15.5% in January, 2009. However, its annual average increased from 13.6% in December 2008 to 14.3% in January 2009.
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