Sri Lanka inflation at 5.0-pct in August

Aug 31, 2010 (LBO) – Consumer prices in Sri Lanka’s capital Colombo rose 5.0 percent in August 2010 from a year earlier, up from 4.3 percent in July, the government’s statistics office said. The Colombo Consumer Price index increased 0.5 percent during the month, against no growth in the month of July. The sub-index for non food items rose 206.9 points from 206.5 points.

The index for food and non-alcoholic beverages rose to 232.0 points from 230.2 a month earlier. Sri Lanka’s consumer price index does not count alcohol and tobacco, in what analysts consider a transparent attempt to under-state inflation.

But Sri Lanka’s central bank has kept tight monetary policy, resisting pressure to bring down interest rates prematurely, though it has monetized debt during 2010. Sri Lanka’s inflation is now at low levels last seen before the post-2004 macro policy setbacks.

Though Sri Lanka has had high interest rates, it suffers higher inflation that its anchor US currency due to periodic ‘quantity easing’ style exercises to buy government debt to finance and improvident government.

The rupee also faces pressure during such times despite having a large interest rate differential with