April inflation bursts past forecast to 9.8%

Saturday, 30 April 2011 00:12 - - {{hitsCtrl.values.hits}}

* Consumer prices hit 27-month high sparked by oil prices

* CB says to take action to ease demand pressure

* Annual average inflation hits 6.6% vs March 6.2%

COLOMBO (Reuters): Sri Lanka’s annual inflation jumped to a 27-month high of 9.8 per cent in April from a year earlier, data showed on Friday, sprinting past forecasts and pressuring the Central Bank to adopt a tighter monetary policy to curb demand-driven inflation.

Annual inflation or consumer prices in April rose from last month’s 8.6 per cent as the government passed global oil price increases to consumers early this month, and due to increasing demand pressure.

Annual average inflation rose to a 19-month high of 6.6 per cent in April from 6.2 per cent in March. Analysts in a Reuters poll had expected consumer prices to have risen 9.1 per cent, and annual average inflation to have risen by 6.5 per cent. Core inflation, which excludes volatile energy and foods in calculation, rose 4.7 per cent this month from a 3.6 month in March, suggesting the island nation’s higher demand in more-than five-year low policy rate regime has also driven the prices. “The rise in core inflation reflects demand-driven pressure. We have already increased the reserve ratio with effect from today and if we feel, we will take more appropriate actions,” K.D. Ranasinghe, the Central Bank’s chief economist, told Reuters.

The Central Bank held interest rates steady on 12 April, but raised commercial banks’ deposit requirement to eight per cent from seven per cent to try and ease potential demand-side inflation. “I think the case for policy tightening is becoming stronger,” said Amal Sandaratne, an economist at Frontier Research in Colombo.