Inflationary expectations low this year – poll

Apr. 12 (LBO) – An online poll of LBO readers has shown that inflationary expectations for 2005 are low. Low future expectations have imported implications for prices as well as interest rates.

High inflationary expectations makes people behave in ways that force inflation up, such as demanding higher wages, or raising prices of output in expectation of cost rises.

Nearly 71 percent of readers, out of more than 1700 who responded to the poll said inflation would go down this year, compared with 42 percent who said inflation would go up.

Less than five percent (4.87%) said inflation would remain the same.

Inflation in the country has moderated since the treasury stopped printing money on a large scale to finance the budget following tsunami debt relief given in 2005.

Foreign aid flows have also strengthened the external sector strengthening the domestic currency and reducing the cost of imports.

Sri Lanka’s central bank lacks independence to conduct monetary policy aimed primarily at price stability, and remains vulnerable to fiscal dominance.

The central bank has no expl