Economist’s concern over core inflation

 (Reuters):  Sri Lanka’s annual inflation slowed to 7.1 percent in June from a year earlier, easing from 8.2 percent in May, according to a new consumer price index, government data showed on Thursday.

The state-run Department of Census and Statistics introduced the new index based on a 2006/2007 survey, replacing the earlier one that had a 2002 base year.

Annual average inflation, measured by a 12-month moving average, accelerated to 6.7 percent in June, from 6.6 percent in May.

“All these numbers are according to our expectations,” Amal Sandaratne, an economist at Frontier Research told Reuters. “But core inflation, which is above headline inflation is worrying and it shows there is a demand-driven inflation pressure.”

Annual core inflation in June recorded a 29-month high of 8.7 percent, higher than last month’s 8.4 percent, while this month’s annual average core inflation was at 7.1 percent, edging up from May’s 6.9 percent, data showed.

According to the earlier index May annual inflation was at 8.8 percent and annual average was at 6.9 percent. Annual core inflation in May was at 4.8 percent.

                      “We have removed fresh foods, energy, transport, rice and coconut from the core inflation basket, compared to only all food and energy in the earlier index,” Department’s price and wages director D.C.A. Gunawardena told Reuters.

The 2002-base year index was introduced in early 2008, replacing Sri Lanka’s old inflation index based on consumer survey done in 1952.

According to the new measure, the June consumer price index was 151.2 points, easing from last month’s 151.5. Under the earlier index, May consumer price index was at 234.8 points.