‘Cannot be complacent about inflation decline in August’

by Anurangi Singh

Despite the inflation rates recording a decline during last month, experts say, it is not something to be complacent about, as the overall trend in the long term shows an increase. The Department of Census and Statics issuing a communiqué stated that inflation for August has decreased by 1.3%, based on the National Consumer Price Index (NCPI). “The NCPI has declined to a 4.5% in August from 5.8% in July this year.

According to the statement undersigned by Dr. A. J. Satharasinghe, Director General, Department of Census and Statistics, this change is a reflection of the decrease in expenditure value of food items by 1.8% and increase in expenditure value of non-food items by 0.1%.

The decrease in expenditure value was due to the price reduction in vegetables, green chillies, sugar, coconut, sprats (dry), rice, dhal maisoor, red onions, potatoes, lime, big onions and wheat flour. Price increases were reported on banana, eggs, papaw, fresh fish, mangoes and chicken during this period.

However, former Deputy Governor of Central Bank, Dr. W. A. Wijewardena, says, this decline during August is not something satisfying. Speaking to the Sunday Observer, he says, this decline in a month has to be compared to a long term pattern which shows more of an increase closer to 6%.

“Both indexes are now on a rising trend from around 1% to about 6%. So, we can’t be complacent about the decline during August. But, the Central Bank has taken contractionary monetary policy decisions to increase the interest by half a percent in June, and the Bank says it is monitoring the development,” he said.

The National Consumer Price Index is not the official price index. The main index considered in making cost of living allowances is the Colombo Consumer Price Index (CCPI). The NCPI is used only to fill in the gaps, as the Colombo Price Index calculates only for the Colombo District, and therefore, there was a criticism that it doesn’t represent the national inflation rate.

Dr. Wijewardena went on to explain, “Sri Lanka’s exports are reducing, especially, tea and garment. During the first six months of the year the exports have declined by 6 %, while imports have fallen by only 1%. Therefore, we have a huge gap in the balance of payment.

The gap has forced the exchange rate to depreciate, and the CB has to hold on to the current exchange rate strategically. Due to these reasons we cannot be complacent about the decreased inflation in the month of August.” he explained.