Communications Department
30, Janadhipathi Mawatha, Colombo 01, Sri Lanka.
Tel : 2477424, 2477423, 2477311
Fax: 2346257, 2477739
E-mail: [email protected], [email protected]
Web: www.cbsl.gov.lk
Press Release
Issued By
Date
Statistics Department
2011 -03 - 28
Inflation is expected to moderate after April 2011
Inflation increased in the beginning of the year, mainly due to the rise in prices of
several varieties of food items, primarily owing to supply disruptions caused by the
adverse weather conditions that prevailed in major producing areas. The annual
average inflation, as measured by the Colombo Consumers’ Price Index (CCPI)
(2002=100), increased to 6.1 per cent in February from 6.0 per cent in January 2011,
while the year-on-year inflation increased to 7.8 per cent as anticipated. However,
with the increased supply of vegetables and other crops in the market since the last
week of February, a gradual reduction of prices, particularly, most varieties of
vegetables, rice, fish and sea food, big onion, red onion, potato, coconut and coconut
oil etc. has been observed. As a result, the Index is expected to decrease in March
2011 compared to that in February 2011. However, inflation on year-on-year basis is
likely to increase to around 8 per cent in March 2011, due to the low base in March
2010. Meanwhile, a marginal increase in the annual average inflation is also
estimated. The upward trend is expected to continue in April 2011 as well, mainly
due to the festive demand and the base impact. The monthly changes given in Chart 1
are based on the expected seasonal patterns in prices.
Nevertheless, with stocks being released to the market and the expected increase in
the extent of cultivation during the Yala season, prices are expected to remain low
during the latter period of the year. Accordingly, year-on-year inflation is expected to
decelerate from May 2011 onwards to reach 6.0-7.0 per cent by the year end,
although annual average inflation may follow an increasing trend during the balance
period of the year to record around 7 per cent by December 2011.
Chart 1:The Actual and Forecasted Movements of the CCPI
12.0
10.0
Per cent
8.0
6.0
4.0
2.0
2010
Year-on-Year % Change
Dec
Nov
Oct
Sep
Aug
Jul
Jun
May
Apr
Mar
Feb
Jan
Dec
Nov
Oct
Sep
Aug
Jul
Jun
Apr
Mar
May
-2.0
Feb
Jan
0.0
2011
Annual Average % Change
Monthly % Change
The performance in the key sectors of the economy has raised the prospects for high
economic growth in 2011, which would contribute positively towards containing
inflation. However, unpredictable weather conditions could impact negatively
causing temporary price increases. The continuous increase in the prices of key
international commodities, especially that of crude oil, could also cause a one-off
increase in inflation if it is passed through to domestic consumers. Even if such price
increases are not passed on to the domestic consumers, the contribution of imported
items to the annual average inflation would increase from around 20 per cent in
February to around 24 per cent in December. Under this scenario, the contribution of
imported items to year-on-year inflation would decline over time.
The ongoing fiscal consolidation process has lowered the fiscal deficit and the need
for the government to borrow from the banking system, thereby reducing demand
side pressures on inflation. In terms of capacity utilisation, space to increase
production within the existing capacity as well as the expansion of the existing
capacity, are likely to further mitigate inflationary pressures. Meanwhile, the
appreciating trend of the rupee in the foreign exchange market is also expected to
mitigate the impact of adverse movements of international commodity prices on
domestic inflation.