ECONOMYEXT – Sri Lanka’s inflation over the 12-months to May 2024 was 0.9 percent with the central bank only generating 2.5 percent inflation since September 2022 when its deflationary policy started to show up in the balance of payments as a surplus.
Prices measured by the widely-watched Colombo Consumer Price Index fell 0.6 percent in the month of May. The index fell from 195.2 points to 194.1.
The food and non-alcoholic price index fell 1.2 percent to 232.6 points from 235.4 a month earlier.
Since September 2022 food prices are down 5.79 percent.
Sri Lanka’s central bank has been operating deflationary policy and also allowing the rupee to appreciate over the past year bringing down traded price in particular which some non-traded items continued to go up as the price structure adjusted to a collapse of the currency in 2022.
Educations, recreation and culture, while food, clothing and also transport seems to have finished inflating in response to the currency collapse.
Analysts have said that the monetary stability is coming from external anchoring (currency appreciation or stability amid deflationary policy) and the domestic anchor (triggering 5 to 7 percent inflation) is temporarily in abeyance.
Meanwhile growth recovered to 4.5 percent in the last quarter despite a foreign reserve build up in non-inflationary growth.
Singapore’s economic architect told then President J R Jayewardene to not to depreciated the currency and the country will be able to achieve non-inflationary growth.
Singapore does not have a policy rate to engage in money printing to suppress rates and trigger external instability. (Colombo/May31/2024)