Sri Lanka’s debate over the inflation rate 01

Nov 19, 2009 (LBO) – Inflation is considered public enemy number one when a country is not at war. Since Sri Lanka’s 30 year old war is now over, there cannot be a bigger public enemy than inflation.

Inflation Makes People Poorer

All individuals are concerned about inflation because it makes them poorer unless their incomes increase faster than inflation. For instance, if the annual inflation rate is 5% and an individual’s income increases only by 2%, then, he becomes poorer by 3% at the end of the year. Hence, what matters to people is not the inflation rate per se, but whether that rate is higher or lower than the increase in their incomes. Since everyone aspires to become richer over time, inflation rates higher than the increases in incomes are a matter for worrying and concern.

The Poor are the Worst Hit by Inflation

Rich people are in a position to avoid becoming poorer due to inflation by getting their incomes to rise faster than inflation. Anyone visiting a medical specialist or a lawyer will experience that the fees they charge have risen faster than inflation thereby placing them in an advantageous position. This is not the case with the poor people beca