Sri Lanka presidential hopeful plugs petroleum inflation theory: report

Jan 09, 2010 (LBO) – Sri Lanka’s opposition presidential candidate had promised to cut diesel prices in the hope that it would bring consumer prices down, media reports said, echoing the failed 2004 petroleum pricing policy that sent inflation rocketing up. Opposition common candidate retired military general Sarath Fonseka has promised to cut diesel by 50 rupees a litre from the current 73 and kerosene by 30 rupees from the current 50, within 72 hours of being elected, The Daily Mirror newspaper said.

The newspaper said Fonseka the move would “lead to a drop in the prices of essential items.

“I will take steps to bring down the cost of living within seven day upon election to office,” The Daily Mirror quoted Fonseka as saying.

Sri Lanka’s politicians – especially left leaning ones – persist in an extraordinary belief that inflation is not monetary but is petroleum related and specifically related to diesel.

Déjà vu

In 2004, under an economic initiative called ‘removing the plug’, promoted by the Marxist nationalist Janatha Vimukthi Peramuna, Sri Lanka abandoned an automatic petroleum pricing formula that had helped improve government finances and money printing.

Within months, inflation which was near