Sri Lanka inflation slows to 6.3-pct in March

Mar 31, 2010 (LBO) – Consumer prices in Sri Lanka’s capital Colombo rose 6.3 percent in March 2010 from a year earlier, down from 6.9 percent in February with the index falling 1.0 percent in the month, the government’s statistics office said.

In the month of March the Colombo consumer price index fell 1.0 percent in absolute terms to 214.8 points from 216.9 points a month earlier. The food and beverages component of the index fell from 227.3 points to 232.0 points.

All other categories of expenditure components were either flat or showed increases.

Sri Lanka’s rice prices which shot to new heights in the past few weeks fell steeply in recent weeks with the government lifting tax on imports and later the harvests also coming in.

In an unchanged monetary policy stance, such a favourable ‘supply shock’ could increase the disposable incomes of consumers and eventually trigger price increases in other consumption categories and general price levels will return to the original norms.

If policy is tightened a central bank could ‘refuse to validate’ such an increase with a rise in money supply and retain prices at the new lower level. Though there are growing fears of inflationary pressure amid debt monetization and quantity