Sri Lanka’s inflation at 3.2-pct in May 2014

May 30, 2014 (LBO) – Sri Lanka’s consumer prices rose 3.2 percent in the year to May 2014, slowing from 4.9 percent in April, though prices rose 0.6 percent during the month, data from the state statistics office showed. As credit is weak the exchange is facing appreciation pressure, but the Central Bank has kept it down by purchasing dollars.

Foods without alcoholic beverages rose a sharp 1.3 percent during the month, on the back of a 0.7 percent gain a month earlier, while non-foods fell 0.1 percent.

But the 12-month inflation fell due to the so-called base effect where in May 2013 the index gained 2.3 percent.

Sri Lanka’s inflation has been muted in the past 12 months with the credit growth weak and the exchange rate stable despite low interest rates and excess liquidity in money markets from dollar purchases.

Credit is the means through which any central bank money printing is transmitted as price rises into the broader economy including through currency depreciation.

In 2012 the currency depreciated sharply from 110 to 130 to the US dollars, the full effects of which are still being transmitted to non-traded items, analysts say.

The International Monetary Fund said Friday monetary pol