Inflation continues to dip

by Gamini WARUSHAMANA

Inflation continued to decline in June and the 12 month moving average inflation declined to 12.5 percent from 14.7 percent in May. The point-to-point inflation dropped below 1 and recorded at 0.9 percent.

However, the general price level increase continued to the second consecutive month and the Colombo Consumer price Index (CCPI) registered 207.8, a 1.3 percent increase compared to May 2009.

During the month the price of the commodity basket that measures the expenditure of an urban Colombo household increased by Rs. 499.66. The price of food items increased by Rs. 461.29 while the prices of non food items increased by Rs. 38.29.

Prices of many food items have increased sharply in June compared to the previous month. Value change (Contribution to the CCPI) of fish and sea food is Rs. 157.66 (0.43 percent), vegetables Rs. 127.04 (0.34 percent), Green chilies Rs.61.31 (0.17 percent), rice Rs. 49.41 (0.13 percent), chicken Rs. 21.89 (0.06 percent) and B’onions Rs. 14.26 (0.04 percent). Under non food items housing, water, electricity, gas and other fuel category prices have increased by Rs. 28.59 (0.08 percent).

On year to year basis, the highest contribution to the overall price increase, of around 72 per cent, came from non food commodities which increase by 0.6 percent in June 2009. Among the food commodities, rice, vegetables, dhall, milk powder, coconut oil which have significant weights in the CCPI basket recorded price decreases on year to year basis. Under the non food category the prices of diesel, kerosene oil, petrol and gas declined by 42 percent, 38 percent, 24 percent and 13 percent respectively.

According to the Central Bank the decline of the inflation is a result of tight monetary policy the bank adopted during the last few years. Inflation was highest in late 2008 and in october 2008 the 12 months average inflation registered at 23.4 percent.

According to the economic analysts the CB monetary policy targeted this soaring inflation sacrificing many other aspects. For instance the bank turned a deaf ear to the voice of the exporters and declined the depreciation of the rupee. Still the rupee is over valued they accused.

Addressing the Sri Lanka economic Forum last week the CB governor Ajith Nivard Cabraal said inflation has dropped to the lowest in five years. He said that inflation will drop further and remain as a single digit in the future.

The director (Price and Wages) of the Department of Census and Statistics D.C.S. Gunawardena said that the decline of commodity prices in the international markets has made a significant contribution to the downward trend of inflation.

The Rs. 36,179.83 value commodity basket that estimate the official price index CCPI consists of Rs. 26,353.66 value locally produced commodities and Rs. 9,826.17 value imported commodities. Food items such as milk food, onions and potatoes and non food items such as fuel and gas have high weights in the CCPI and these commodity price reduction have significant impact on the index, he said.

However, analysts said that the government has not fully passed the advantage of global commodity price reduction to the consumer and charge a huge tax.