Sri Lanka’s inflation falls by private citizens’ measure

May 03, 2013 (LBO) – Consumer prices in Sri Lanka’s urban areas rose 7.2 percent in April 2013 from a year earlier, according to a price index compiled by citizens down from 12.6 percent in March.

CAL Research said it expected inflation to tick up following an electricity price hike this month.

Analysts say any Central Bank that actively targets inflation can moderate, nullify or reverse the effects of such an increases which are usually referred to as a ‘supply shock’ by tightening monetary policy.

At a very basic level tightening monetary policy makes a paper fiat currency appreciate against real commodities or another currency such as the US dollar keeping overall inflation down.

Countries whose exchange rates appreciate sharply, such as in Japan can have deflation.

The International Monetary Fund has cautioned the Central Bank against loosening policy. IMF Resident Representative Koshy Mathai said the index may pick up 1 to 1.5 percent due to the electricity hike though he had not studied the matter in depth.

Central Bank Governor Nivard Cabraal said he believes there was room to cut rates now that inflation was falling and the monetary authority was selling down