Inflation drops in June

by Lalin Fernandopulle

Inflation for June dropped sharply on a year-on year basis from the previous month, the Department of Census and Statistics data revealed.

Accrodingly inflation, as measured by the change in the Colombo Consumers' Price Index (CCPI) (2006/07=100), declined to 2.8 percent last month from 3.2 percent the previous month.

Inflation continued to remain at single digit levels for the 65th consecutive month in June 2014, it stated. Annual average inflation also continued its decelerating trend since June 2013and reached 4.9 percent in June 2014 from 5.3 percent in May this year..

The relatively low increase in prices of items in the Non-food category and the base effect contributed substantially to contain inflation at low levels in June 2014.

Stable prices of items in many sub-categories, such as Furnishing, Household Equipment and Routine Household Maintenance, Health, Transport, Communication, Recreation and Culture, and Education, and the marginal increase in prices of items in the sub categories of Miscellaneous Goods and Services, Clothing and Footwear, and Housing, Water, Electricity, Gas and Other Fuels contributed to this favourable development.

The increase in prices of items in the Food and Non-alcoholic beverages sub-category contributed to the monthly increase (1.1 percent) 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 and some varieties of rice.

However, prices of many varieties of fruits, eggs and coconut decreased significantly during the month.

Core inflation, being a more reliable predictor of future outlook for inflation, declined on an annual average basis to 3.0 percent in June 2014 from 3.1 in the previous month, recording the lowest level since its inception.

Meanwhile, YoY core inflation increased slightly to 3.5 percent in June from 3.3 percent in May 2014.

The achievement of low level of inflation was influenced by the prudent demand management policies conducted by the Central Bank.