Sri Lanka inflation eases to 4.7 percent

Nov 30, 2011 (LBO) – Sri Lanka’s inflation rose to 4.7 percent in November 2011 from a year earlier decelerating from 5.1 percent in October, but prices rose 0.7 percent during the month, the state statistics office said. Central Bank Governor Nivard Cabraal has said that policy rates will be kept steady in the next few weeks to allow credit growth to ease.

A one-off devaluation last week failed to break the sterilized intervention cycle.

Food prices rose just 0.5 percent in November after falling 0.4 percent a month earlier, but the 12 month increase in food prices eased to 2.1 percent from 3.8 percent a month earlier.

Food prices have fallen steadily from a spike in early March. Sri Lanka also increased fuel prices recently. Fuel price increases help kill demand and keep inflation in check. In countries where fuel prices are adjusted daily inflation is very low.

However last week, the rupee fell 3.0 percent due to a sudden devaluation. Though a devaluation can push prices up analyst say if global commodity prices weaken, the impact will be reduced.

Pressure had been mounting on a rupee peg since early 2011, as credit growth and inflation picked up requiring an increase in interest rates.