Drought impacts prices

Inflation measured by the Colombo Consumers’ Price Index (CCPI) (2006/07=100) increased in July 2012 to a 42-month high. The prevailing drought and the resulting price increase of food items such as rice, vegetables, fruits, the price increase of fish and impact of the depreciating rupee on prices of imported commodities have contributed to inflation. Analysts said that contractionary policies introduced to address the external sector issues inevitably create pressure on price levels and concern should be on possible secondary effects. Already trade unions are demanding wage increases and industrial sector trade unions are demanding a 40 percent wage increase.

According to the Department of Census and Statistics (DCS), annual average inflation increased to 6.0 per cent in July 2012, from 5.8 percent in the previous month.

The year-on-year (YoY) inflation rose to 9.8 per cent in July 2012 from 9.3 per cent in June 2012, mainly due to the price increases in food.Meanwhile, core inflation continued its decelerating trend for the tenth consecutive month and reached at 5.5 per cent in July 2012, on an annual average basis, from 5.7 per cent in June 2012, while increasing on a YoY basis to 6.0 per cent in July 2012 from 5.8 per cent in June.

The CCPI increased by 0.9 per cent in July 2012 over the previous month, with the Index increasing in absolute terms to 166.7 from 165.2 in June, 2012. The contribution to the monthly increase in the Index came mainly from price increases in the food and non-alcoholic beverages category (by 1.6 per cent) followed by the non-food category (by 0.3 per cent).

- GW