Sri Lanka inflation spikes in May, but moderating trend still seen

May 30, 2007 (LBO) – Sri Lanka’s inflation spiked in May by a massive 3 percentage points, reversing a three month trend of falling prices, but the 12-month un-adjusted inflation continued to move down. Sri Lanka’s interest rates have been moving up from the beginning of the year as the government borrows heavily from domestic markets. The 3-month treasury bill yield is now close to 17 percent. In April the Colombo Consumer Price Index rose by 151 index points, with food prices rising by 141 points to 5,176 point, but the index number is still lower than the January peak of 5,184, the government’s statistics office said.

But the 12-month point to point inflation eased to 13.7 percent from 16.3 percent, as the May 2007 spike was still lower than the 5.4 percent jump in 2006.

Meanwhile, the seasonally adjusted moving average, which displays a lagged behavior, remained the same as the previous month at 17.4 percent, indicating that it may have peaked.

In May Sri Lanka’s inflation usually shoots up, which some critics have said is the result of excessive reserve money growth in April, which is a structural fiscal and monetary problem in Sri Lanka.

Sri Lanka’s central bank has been on an