Sri Lanka country-wide inflation rockets to 21%

Oct 12, 2007 (LBO) – Sri Lanka's country-wide inflation has rocketed to 21 percent in July 2007 even as authorities derided a more widely watched price index that measures prices in the capital Colombo as being outdated. In July the Colombo Consumer Price Index (CCPI) only showed a 17.6 percent increase over the previous 12-months compared to the 21 percent for the Sri Lanka Consumer Price Index (SLCPI).

The CCPI is also used to index wages of workers.

Authorities have tried to scrap the CCPI index saying it does not show the so-called 'correct' inflation as its base is too old and too narrow despite several adjustments being made to the base.

Critics have pointed out that that the real 'problem' authorities have with the index is that it responds too sharply to loose monetary policy or money printing.

However trade unions have resisted the use of alternative ways to index wages on the basis that a new index would be manipulated by authorities to show a lesser inflation in order to pay a smaller cost of living allowance to workers.

Such practices are routine in countries which print money to finance budget deficit

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