Sri Lanka’s inflation hit new high; another index suppressed

May 30, 2008 (LBO) – Inflation in Sri Lanka’s capital hit a new high of 26.2 percent in May up from 25.0 percent on a new index, while an index showing higher inflation was scrapped, the government’s statistics office said. Increases were seen in the food, clothing and footwear, housing and fuels, house maintenance, health and education.

Sri Lanka’s new inflation index has come under fire as an attempt to understate inflation and not appropriate to index wages as its weight in food is lower than food spend of working class people.

The old index is also used to index wages. But Sri Lanka’s labour unions use an odd method to index wages based on index points, not percentages.

Statistics office said in a notice that each index point in the new index was worth 67 Sri Lanka rupees. An index point in the old index was valued to 2.0 rupees.

Criticism of inflation reports in Sri Lanka comes as the United States is also under fire for understating inflation.

The economic troubles in the United States have been partly blamed on index manipulation, which critics say allowed the Federal Reserve to print more money creating a housing and commodities bubble.

Heavy index manipulation has also been reported

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