Internal issues also increases food prices - Economic analysts

by Gamini Warushamana

Economic analysts say that internal issues in the country also increases food prices in the local market and the authorities should take measures to curb the situation without blaming external shocks.

Dr. Sirimal Abeyratne of the Department of Economics, University of Colombo said that both external and internal factors are accountable for food price increases in the local market. External shocks such as crude oil price increases and food price increases in the international market are strong factors.

Similarly, inefficiency in processing and distribution of commodities also add to the cost and cause price increases. Dr. Abeyratne said that the continuous losses made by the CPC is an ideal example.

Due to the CPC losses the crude oil price reduction in the international market is not passed on to the consumer. Dr. Abeyratne said that in the commodity markets too this processing and distribution inefficiency exists and nobody cares about it.

The crude oil prices showed a wide fluctuation in the recent past. At the beginning of the year the crude price hit the US $ 100 mark per barrel. But today it has dropped to $85-87.

By the end of December last year the price was around $ 95. When the price increased to $100 per barrel the government increased fuel prices but the prices have not been adjusted today although international prices have dropped, consumers said.

Dr. Abeyratne said that the massive increase in government expenditure is a major domestic reason for price increases. The large number of ministries and ministers and complex functions have increased costs and created managerial inefficiency. High defence expenditure is another factor, he said.

The increasing government expenditure has to be supported by an increase in government revenue. Today financing government expenditure is a problem and as a result the money supply has increased. The expansionary fiscal policy and monetary policy are the main reasons for domestic price increase, Dr. Abeyratne said.

However, according to Trade Minister Bandula Gunawardena the price increase is totally driven by external factors. He said that in the present international market condition nobody can reduce the price of goods in the local market.

Dr. Abeyratne said that if the local price increase is driven solely by international factors, inflation in other countries too has to increase. Today our inflation rate is double digit (17% in December) and one of the highest in the world. Inflation in the region is around 5-7%.

If the government's objective is to end the war then it is realistic and this situation is acceptable. However this should be supported by economic policies.

Today, even in the long run there is no sign of growth because the policy environment in the country is not supportive to the private sector. Regulatory policy, tax policy, long term credit and interest rate policies hinder the growth of the private sector, Dr. Abeyratne said.

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