May 21, 2007 (LBO) – Though Sri Lanka’s inflation will continue to fall with tight monetary policy, there may be spikes due to administered price rises and seasonal factors, the Central Bank has warned. Sri Lanka’s inflation has come down steadily since the Central Bank virtually halted money printing to finance the budget deficit, but the bank overshot the reserve money target in April.
“A favourable influence is expected on inflation as a result of persistently tight monetary policy as the reserve money targets have already been met in the first four
months of 2007,” Central Bank said in a statement.
“However, there will be upward and downward risks associated with headline inflation influenced by possible changes in prices due to seasonal factors and administered price revisions.”
The bank claimed that price revision of fuel made in March and April as well as a possible hike in electricity prices may affect overall inflation in the future.
In May wheat prices have also gone up.
“In addition, even though L.P. gas is not an item included in the CCPI basket, the government approval to increase the gas prices would have an indirect upward risk on inflation in the coming months,