Oct 31, 2012 (LBO) – Consumer price inflation in Sri Lanka’s capital Colombo slowed to 8.9 percent in the 12 months to October from 9.1 percent a month earlier, data from the state debt office showed, as credit tightened after a balance of payments crisis. The statistics office said the Colombo Consumer Price Index, from which alcohol and tobacco has been removed (a recent tax hike pushed up the price of both items) fell in absolute terms by 0.3 percent in the month of October to 165.0 points.
The index has fallen for three straight months after peaking at 166.7 points in July.
Sri Lanka ran into a balance of payments crisis after rulers manipulated energy tariffs with large volumes of credit and the central bank accommodated it with sterilized foreign exchange sales.
The rupee fell from 110 to 134 to the US dollar during the crisis and has since strengthened to around 130 to the US dollar and interest rates are higher, slowing credit.
In the immediate after math of the past two balance of payment crises inflation has slowed (a slowdown in the growth of prices) or fallen in absolute terms (deflated) as bank credit contracted and the currency peg appreciated against the US dollar.
In the current crisis, bank credit is still growing