May 31, 2013 (LBO) – Consumer prices in Sri Lanka’s capital Colombo rose 7.3 percent in the 12 months to May 2013 accelerating from 6.4 percent in April mostly due a power tariff hike, data from the state statistics office showed. The Central Bank cut interest rates last month despite advice from the International Monetary Fund to keep policy on hold.
Sri Lanka’s government has seen revenues falling requiring higher interest rates to bridge the deficit without inflationary central bank accommodation. But the rise in energy prices in turn will reduce credit demand from energy utilities.
The Colombo Consumer Price Index gained 2.3 percent during the month, driven by a 9.9 percent gain in the housing and utilities sub-group. The sub-index was up 13.5 percent year on year.
All sustained inflation however is monetary in nature though it may show in an index in the form of rising prices of individual items.
Sri Lanka’s inflation has been moderating after a spike in mid 2012 after the currency depreciated due to a central bank accommodated credit bubble fired by energy subsidies.
The current high inflation is coming partly from rupee depreciation triggered by the Central Bank trying to accommodate a ‘supply shock’