Financial Times

Inflation to drop due to falling purchasing power


Inflation is poised to drop further in coming months due to the declining purchasing power of the consumer with low or no salary increments and low expectations in a challenging economic environment, according to analysts.

“The recent global economic trend that resulted in a sharp decline in prices of most commodities is expected to be favourable on local prices for these goods, but the real benefit is not yet passed down to the customers due to high government taxes,” an analyst said.

Srimal Liyanage, Head of Research Lanka Securities said that the CCPI-N point-to-point inflation dropped to a five year low last month to just 5.3% as opposed to 7.6% in February 2009 and 23.8% in March 2008.

“This is also the ninth-consecutive monthly decline recorded in the point-to-point change after reaching as high as 28.2% in June 2008. The positive momentum can be directly attributable to reducing dispensable income of people and relief measures taken by the government to bring down prices of some selected essential good item,” he said.

He said that the CCPI-N annual average inflation continued to decline for the fifth consecutive monthly decline to 18.6% in March 2009 (20.3% in February 2009). “This can be due to favourable downward price revisions of electricity, gas and other fuels,” he explained.

The analyst said that a possible devaluation in the currency will impact negatively on the domestic price levels. “But the stock market expects the government to change its tax policies favourably to bring down annual average inflation to a single digit soon,” he added.

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