Inflation drops in May

Inflation, as measured by the change in the Colombo Consumers' Price Index (CCPI) (2006-07 = 100), computed by the Department of Census and Statistics, dropped considerably to 3.2 percent in May, on a year-on-year (YoY) basis from 4.9 percent the previous month, reaching the lowest rate recorded since March 2012.

Annual average inflation also moderated further to 5.3 percent in May 2014 from 5.6 percent in April 2014, following the decelerating trend observed since June 2013.

The sharp deceleration of inflation was a result of the moderation in prices of some items in the Non-food category and the high base that prevailed in May 2013.

Within Non-food category, the prices in the sub category of Housing, Water, Electricity, Gas and Other Fuels dropped by 0.1 percent, although the sub category of Clothing and Footwear increased by 0.1 percent.

However, all the other sub categories including Furnishing, Household Equipment and Routine Household Maintenance, Transport, Communication, Recreation and Culture, Education, Health, and Miscellaneous Goods and Services remained unchanged.

The prices of items in the Food and Non-alcoholic beverages category, which increased by 1.3 percent in May 2014 compared to the previous month was the main contributor to the monthly increase in the CCPI.

Within the Food category, price increases were recorded in almost all varieties of vegetables, fresh fish, potatoes, red onion, big onion, green chillies, some condiments and sugar.

However, prices of some varieties of fruits and eggs dropped significantly.

Core inflation declined on YoY and annual average basis in May 2014. Accordingly, the annual average core inflation, which decelerated steadily from June 2013, reached 3.1 percent in May 2014, the lowest recorded level since its inception.

YoY core inflation also dropped marginally to 3.3 percent in May from 3.4 percent in April 2014. This favourable movement reflects the impact of demand management policy that effectively checked the growth in aggregate demand.