Sri Lanka inflation to remain high in 2008 first half?

Feb 05, 2008 (LBO) — Sri Lanka’s central bank has warned that inflation may remain high around 16 to 20 percent in the first half of 2008 and blamed “low supply” of domestic foods for the sudden price jump of 3.0 percent in January. Eighty percent of the price increases was due to food, the monetary authority said, while an increase fuel and cooking gas brought in 16 percent, pushing inflation measured by the new Colombo Consumer Price Index to 20.8 percent from 18.8 percent in December.

“The pass through of international price increases, though it leads to a one time increase in prices, will have a favorable impact on containing future inflation by eliminating the need for subsidising same, through expansionary borrowings of the government,” the Central Bank said.

“This one time increase will be gradually dissipated over the next few months. Hence, until it is fully dissipated, inflation is likely to remain around 16 to 20 per cent during the first half of 2008.”

The central bank also claimed that the upward trend in prices in 2007 was largely due to the removal of a fuel subsidy and increases in prices of imported food products.

Expansionary Borrowing

However economic analysts say the inflation pro