Sri Lanka headline inflation extends fall below core

Feb 07, 2009 (LBO) – Sri Lanka’s headline inflation fell further below the country’s controversial core inflation number, mimicking the US experience in the early 1980s, amid a deflating commodity bubble and fresh attempts to tinker with the index. The latest twist comes at a time when, not only the concept of targeting ‘core’ inflation, but also that of controlling ‘headline’ inflation is being questioned, after a reserve currency central bank induced asset-price bubble burst, resulting in a global economic collapse.

Sri Lanka’s so-called headline Colombo Consumer’s Price Index (CCPI) – also under fire from critics for dropping a standard category and averaging prices across months – fell to 10.7 percent in January 2009 from 14.4 percent in December.

Oops

The ‘core’ inflation number which excludes food and energy, fell to only 15.5 percent from 15.7 percent, resulting in core inflation being higher by 4.8 percent than headline inflation.

Some central banks, led by the US Federal Reserve, claim that an index without food and energy, shows ‘underlying’ inflation, which they use as a guide for monetary policy.

Sri Lanka’s central bank has