The central bank said the high 'headline' inflation showed up through increases in food prices, especially vegetables and fish.
Health and transport contributed to the biggest rise in the core index at 55 percent. The central bank said bus fares, pharmaceuticals and medical specialists’ fees rose.
Miscellaneous goods and services, housing and water also rose.
Core inflation indices were originally developed to provide 'early warning' to monetary policy but has now increasingly come under fire for leading policy makers astray.
In the US the 'core' index has neither food nor energy which its central bank claimed were 'volatile' and dropped. But economists say such goods respond most quickly to central bank money printing.
The current commodity bubble, worsened by massive US money printing since August 2007 has strengthened the case of critics of central banking and weakened the case for using core indices to guide monetary policy.
With economic growth expected to slow worldwide, economic analysts have pointed out that high oil prices can only be explained as a monetary policy led policy bubble.
The bubble was expected to collapse in the wake of the sub-prime credit collapse, as had happened on earlier occasions when the original credit bubbles fired by central bank money printing have collapsed.
Already the US had signaled an end to further money printing with Fed chief Ben Bernanke facing unprecedented criticism from anti-inflation economists for firing a commodity bubble.
Oil prices are now almost 15 dollar below its peak, but whether it is a pause or a burst bubble is not yet clear.
Wheat prices have been falling since February, gold since March and rice since April.
Economists and the International Monetary Fund has said that this is the worst 'broadbased' commodity bubble, since 1973 when the US dollar was forced off the gold standard amid heavy money printing and record budget deficits under President Nixon.
It's not surprising that not only world Bank, many economist will turn up to learn how " Mahinda Chinthanaya" ruined this country within such small period of time – from just almost 5-6% to 45% inflation. It is such a prestigious record for CBSL that we are the top performing country in the region in terms of highest inflation. We are living in a paradise of person who thinks that CWE can control inflation.
Headline inflation is going at a rate. If you look at the composition of consumer basket, 50% - 60% is non tradable goods. No impact of world market prices. How prices of domestically produced goods are going up at this rate? It is not a surprise that the country’s economy is handled by economists like our friend.
And, core inflation tend to move down when headline inflation is moving up by oil and foods components since people spend more on these basic needs. But, amazingly , CBSL’s core inflation is higher than many of the regional country’s headline inflation.
Printing money and cooking the books.
Nothing innovative about these measures. Everyones doing them and has been for a long time.
I suppose it's allright the CB basing their Inflation target on an index other than the CPI, but what's happening is here is that that it is trying to sell this as proof that inflation is lower.
Really, "core inflation" at 9.6 should still ring alarm belles, I recall that CPI was much lower than that a few years ago.
On the question of which inflation rate to target, Greg Mankiw, one of my favorite economists, has a paper out , which might of interest to people here.
Rest of the world is experiencing inflation and we should be proud that we have been able to reduce inflation despite record-high fuel and commodity prices in the world market.
Soon IMF, WB, ADB and many countries will send delegations to SL to learn from our experience- how to reduce inflation.
In an attempt to take their innovative measures further I reliably understand CBSL intends to launch two more Indices; names are still secret but my sources have told me that they would named KOHEDA (Where) Inflation and KOI( What) inflation. These two indices, togetehr with the CORE inflation index, Sri Lanka will see inflation reduced to single digits soon thereby improving the living standards and realizing goals of Mihin Chintanya.
For the first time in 50 years people have now started to serious question the figures. like i said, this IS sad. very sad.
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