June 05, 2008 (LBO) – Sri Lanka’s central bank said its ‘core inflation’ index from which a number of items such as food had been dropped was 9.6 percent in May 2008 against ‘headline’ inflation of 26.2 percent. In May the ‘core’ index had grown 0.3 percent against 0.9 percent in April. The moving average rose to 7.9 percent from 7.7 percent in April.
The central bank said the high ‘headline’ inflation showed up through increases in food prices, especially vegetables and fish.
Health and transport contributed to the biggest rise in the core index at 55 percent. The central bank said bus fares, pharmaceuticals and medical specialists’ fees rose.
Miscellaneous goods and services, housing and water also rose.
Core inflation indices were originally developed to provide ‘early warning’ to monetary policy but has now increasingly come under fire for leading policy makers astray.
In the US the ‘core’ index has neither food nor energy which its central bank claimed were ‘volatile’ and dropped. But economists say such goods respond most quickly to central bank money printing.
The current commodity bubble, worsened by massive US money printing since August 2007 has strengthened the case