1 January 2024
Shoppers flock to bustling Colombo marketplace, stocking up on goods ahead of the New Year festivities- Pic by Kithsiri da Mel
Central Bank targets 5% inflation in the medium-term
Inflation in the Colombo district measured on an annual basis accelerated to 4.0 percent in December as food prices rose, ending their months-long deflation, reflecting the prevalent price pressures in the economy.
This is an acceleration from the 3.4 percent increase in prices in November measured based on the Colombo Consumer Price Index and also marked the third consecutive month of price rises after the favourable effects from a higher base prevailed last year that came to an end in September.
The monthly prices rose 0.9 percent, slightly easing from 1.0 percent a month earlier. This was made entirely possible by the 0.4 percent decline in non-food prices as prices of most sub-categories led by transport declined due to the downward revision in both petrol and diesel prices earlier in the month.
The so-called core inflation, which excludes the often-volatile food, energy and transport, rose by 0.6 percent in the twelve months to November from 0.8 percent a month earlier.
Food prices meanwhile ended their five-month deflationary streak to record a 0.3 percent annual increase while the monthly prices climbed 3.7 percent in December.
The non-food prices rose by 5.8 percent in December, decelerating from 6.8 percent in November. The monthly prices fell 0.4 percent from a 1.3 percent in November.
The Central Bank recently declared victory over defeating the worst inflationary spiral the country ever saw by bringing inflation to single-digit levels by July from nearly 70 percent last September.
The Central Bank did this by raising interest rates to record high levels overnight which virtually crushed demand in the economy.
The Central Bank desires to maintain its medium-term inflation at between 3 to 7 percent levels and forecasts prices to rise at no more than 5 percent in the medium-term even after the hike in the Value Added Tax from today.
Despite inflation returning to single digit levels, prices remain manifold higher from their pre-crisis and pre-pandemic levels as inflation is only a measure of the pace of price increases over a given period – either a year or month.
However, incomes of majority of the people have not increased during the same period, leaving them economically worse off than they were prior to the economic crisis.