The rise in inflation came despite a fall in international oil prices, and multiple cuts in local retail fuel prices during the month, exposing oft repeated official claims that Sri Lanka's inflation is caused by oil prices.
Some economists had been warning that Sri Lanka's inflation would continue to rise despite falling oil prices because of excessive money printing to finance the budget deficit.
They point out that Sri Lanka's balance of payments is also under pressure for the same reason.
Central Bank credit to the government in terms of treasury bill purchases alone had risen from about 20 billion rupees in February to 63 billion in October.
However, inflation rate for October was a tad lower than the 17.7 percent recorded in June this year.
On a 12-month moving average, inflation for October was 11.8 percent from 11.2 percent recorded in Sept.
The government usually takes the twelve month moving average as the official inflation figure.
The department said higher prices of cigarettes, alcohol, eggs, rice, bread, wheat flour, certain types of vegetables, fresh fish and meat, pushed consumer prices up during the month.
However, there was a drop in prices of sugar, reflecting an ease in global sugar prices. Sri Lanka imports over 50 percent of its sugar needs.
In answer to anonymous user who mentioned sticky prices on the way down....
You are right about prices being sticky.
BUT this is not about whether prices are sticky on the way down.
If oil prices are the culprit, the index should have remained at the same level if prices are sticky.
But the index went UP by 1.8 percent in October alone (More than 80 points). This is the highest it has gone in any October for the last several years. Including when oil prices were rising in 2004.
In many countries this is the inflation they have for the ENTIRE YEAR.
So you can imagine the amount of money we have to print to achieve this result.
And how about the balance of payments problem?
If you had more competitive markets, without the government trying to control everything, you would have immediate price reductions. The producer that passes on the benefits to the consumer will have higher sales, if he beats his competitiors to the price-cut.
One reason we dont have enough domestic competition is perhaps bureaucratic barriers to entry.
Look at the telecom industry - Sri Lankas IDD rates are some of the cheapest in the world. That wasnt the case before the industry was privatized.
Also, petrol or diesel isnt part of the index - kerosine oil and electricity are. Kerosine is a subsidised fuel with a lower rate of fluctuation than petrol and diesel.
Electricity is subsidised as well - CEB sells a unit at less than the cost to produce it, the difference is cushioned by loans from state banks flloated by the treasury.
this process can't be changed coz our beloved JVP keeps blocking the reforms, coz they see the SLT staff and see how happy they are without union-dependent strikes and dont want to lose that control. mutts.
Cigarettes and arrack have both increased in price due to tax, not cost of production and nothing to do with fuel.
If you take the index, there are hardly any items that are heavily power-dependant for production. Many are grains and simple food items, clothing. So the index going up is unrelated to the products your referring to.
If at all, the true rate should be higher, because electricity and kerosine are both subsidised.
Money supply growth caused by government demand for cash is the primary driver of inflation presently.
It costs a lot to feed so many hungry ministers, deputy ministers, pay for their luxury vehicle petrol bills, fund their wives shopping excursions overseas and pay for hotel rooms, over and above the pagas they demand for approval for projects from their respective ministries.
you can check out the index at the official Stat department webpage:
www.statistics.gov.lk
Mahinda, keep up your good work and order few more Mercs and BMW's. Also, try to give some more Montero's and Prado's to those devoted MP's and Provincial Councilors.
Then we can claim that Sri Lanka is having the best inflation rate and best vehicles in the world!!!
Can LBO please publish a document indicating the estimated forecast costs of basic necessities: Bread, eggs, milk, flour etc.... for the coming months up to the next two years or so.
The forecast can be based on today's inflation rate and CPI. I believe that such a document will help the public to prepare for the oncoming storm, as well as increase awareness of the economic crisis.
Furthermore, consumer prices seem to be sticky on the way down in Sri Lanka. While companies are swift to increase prices citing higher costs of production due to increased fuel costs, they are slow to pass on benefits to consumers and reduce prices when fuel costs ease.
n USA, cost of gasoline is less than $2.00.
Sena Perera
Petrochemical Engineer. USA
Inflation - 17.2%
1US Dollar - 108 rupees
Military casualties for last 72 days - 616 killed and 2950 injured (Last week Sunday times Iqbal Athas column)
Civilans killed for last 11 months- about 1300 600000 tamils in starvation in Jaffna (It's tamils so no problem)
Abductions in colombo - 59
Well Done!!
All Rights Reserved.