Sri Lanka’s ‘underlying’ inflation in new trouble, as Thailand dumps core

Sept 06, 2008 (LBO) – Sri Lanka’s ‘core’ inflation index, which is claimed to be responsive to central bank action, continued to edge up in August, even as ‘headline’ inflation fell amidst tight policy, and Thailand got ready to scrap core inflation targeting. A statement from the statistics unit of Sri Lanka’s central bank said a controversial ‘core’ inflation index without food and energy, which is said to show underlying inflation, moved up to 17.4 percent in August from 17.2 percent in July.

But ‘headline’ inflation has been falling for two months after the central bank tightened monetary policy at the beginning of the year.

Meanwhile a global food and energy commodity bubble fired by reserve currency central banks and worsened by a “monetary shock” from post-August 2007 money printing by the Federal Reserve to enforce rate cuts, has also started to collapse, after the underlying sub-prime credit bubble collapsed.

Sri Lanka’s so-called ‘headline’ inflation peaked in June at 28.2 percent and fell to 26.6 percent in July. It fell further to 24.9 percent in August. But ‘core’ inflation is still climbing.

Core Contradiction

The statement from the central bank’s statistics department said inflation (headline) which began to fall