"Though we have done this as a technical subject various group can project them for their benefit."
The Sri Lanka Consumer Price Index (SLCPI) which is based on consumption data collected in 1995 showed an increase of 26.2 percent in November 2007, the highest since the index was started.
Confusion
The numbers came as authorities said the country's most widely watched index, the Colombo Consumer Price Index (CCPI) which showed an inflation of 19.6 percent in the month was "wrong" because its base was 1952.
"SLCPI, we have now stopped," D C A Gunawardena who heads the price index unit of statistics office said.
"We are not going to release it in the future. You must realize that when there are several indices, people compare it and it is politicized."
Gunewardene said the statistics office is working towards a new country-wide index and said the SLCPI which had a 12 year base was also outdated.
Officials say most villagers come to urban centres to purchase goods and price trends in cities are good enough for policymakers.
Indices from prices of urban centres can be released quickly because data is easier to collect. The Sri Lanka index came six weeks after the end of the month compared to the Colombo index which comes at the end of the month.
The statistics office has also released a new index for Colombo which has showed an inflation of 19.3 percent for November 2007. Authorities said it depicted inflation more accurately than the existing index for the capital.
But the index has been viewed with suspicion by critics who see it as an attempt to understate inflation especially after it was revealed that alcohol and tobacco was excluded from it ostensibly because of a government policy against the use of intoxicants.
The index was also released at a time when massive money printing drove prices up sharply.
Standard Practice
Economic analysts say halting the release of index numbers, manipulating the basket and suppressing money supply data have been standard practices of high inflation countries in the past.
Zimbabwe also stopped releasing inflation reports after September 2007 when consumer prices hit 8,000 percent.
So far, Sri Lanka has not suppressed money supply numbers.
It is also standard practice for authorities to claim an upward bias in an inflation index and to revise it downwards, while no one claims an index is showing excessively low inflation and tries to revise it upwards.
But even countries with relatively low inflation which have central banking regimes, such as the United States have manipulated price indexes to understate inflation and keep interest rates low.
Understating inflation is a sophisticated science but countries with strict inflation targeting regimes have now started to move away from the practice to some extent.
Understating
The Bureau of Labour Statistics (BLS) of the US has now come under fire renewed fire following the latest financial market turmoil for understating inflation and helping fire a credit bubble.
The US abandoned fixed-basket indices and moved to 'geometric weighting' - a way to reduce the impact of fast rising goods, and also started 'hedonic regression' which undercounts price gains on the pretext that a quality rise increases the 'pleasure' of a consumer.
By understating inflation a central bank can avoid raising interest rates for a longer period and continue to print money and the government can save on inflation linked payments.
Critics say US authorities have blunted their price index by loading it with housing, which is now about 30 percent of the index, and using 'imputed' rents, which are not based on actual real world data.
This has had dangerous effects for monetary policy. As a housing bubble starts, its effects are not captured in the index, allowing a central bank to keep monetary policy loose and firing the bubble further.
Having blunted their index to the point of making it almost useless for monetary policy purposes, the Federal Reserve then went looking for 'leading indicators'.
Former Federal Reserve chairman Alan Greenspan was also involved in justifying geometric weighting together with the economist Michael Boskin who was advising the government at the time.
The move was thought to have saved billions in terms of underpaying interest of inflation -linked government bonds and cost of living allowances. The original Boskin proposal promised one trillion dollars in savings over 12 years.
In the face of 'low' US inflation, critics say Greenspan was able to keep interest rates low and even cut rates to one percent after firing a dot com bubble.
Bubble Detector
The European Central Bank which has an overarching mandate for price stability initially dropped housing from its harmonized index.
Countries like Britain which has an inflation targeting framework with a clear mandate for price stability uses mortgage payments (without interest) in its price index.
Indices blunted by rents can also have an opposite effect and also confound monetary policy, especially when a property bubble bursts.
Critics have pointed out that while US house prices are now plummeting, inflation continues to be high (in December 2007 inflation increased to 4.1 percent) making it impossible for the Fed to justify further rate cuts.
In an interview with Britain's Telegraph newspaper legendary monetary economist Anna Schwartz, now 92, who co-authored A monetary history of the United States with Milton Friedman slammed Greenspan last week for printing too much money for too long and firing the sub prime bubble.
"There never would have been a sub-prime mortgage crisis if the Fed had been alert. This is something Alan Greenspan must answer for."
"It is clear that monetary policy was too accommodative. Rates of one per cent were bound to encourage all kinds of risky behaviour," she said.
Fixed Weights
Sri Lanka's CCPI (N) also has a higher weighting for housing, though officials refused to disclose the exact amount. The older CCPI index had only a six percent weight for rent.
Some economic analysts have said that the higher proportion of locally produced food or 'non-tradables' in the old index made it much more sensitive to monetary policy.
In fact the old index fell to 16.4 percent in December 2007 compared to 18.8 percent for the CCPI (N) after just two months of tight monetary policy.
But the new CCPI index is also a straightforward fixed-weight index despite having a lower weight in food.
However critics have pointed out that it is not suitable to index wages as the CCPI(N) does not reflect the consumption patterns of working class persons who consume more food.
The old index represented working class households while the new one represents all households.
I would prefer to have SLCPI since it cover greater area (better sample) than Colombo and the basket of goods are more current than that in the CCPI.
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