Inflation eases as food prices moderate

•  Treasury expectsinflation to fall below 9% after September
•  Annual inflation eased due to drop in food prices: CB

Reuters: Sri Lanka’s inflation rate in September eased to 9.1% from a year earlier, moderating further from July’s near-record high as food prices fell.

Analysts polled by Reuters had expected annual inflation to ease to 9.2% from 9.5% in August.

Annual average inflation, measured on a 12-month moving average, picked up to 6.5%, in line with expectations, from 6.3% in August, according to data released by the State-run Department of Census and Statistics on Friday.

“As we expected, inflation has come down, largely due to a drop in vegetable prices,” Central Bank Chief Economist Swarna Gunaratne told Reuters.

Welcome rain has fallen recently in some major farming areas which have battled a drought since March, helping to ease shortages of vegetables and rice which had driven up prices.

But imported inflation remains a major concern.

Though the Sri Lankan rupee appreciated about 2% against the US dollar this month, it has still fallen 14% since November. The island has to import most of its consumer goods and all of its oil needs. Inflation in July hit 9.8%, the highest since January 2009’s record 10.4%. The Central Bank said last month that it expects annual average inflation to be around 7% and the year-on-year figure to stand at 8.9 to 9% by the end of 2012.

After the Central Bank kept key policy rates steady on 18 September, Governor Ajith Nivard Cabraal said the island nation remains vulnerable to inflation risks but prices are expected to moderate. The Central Bank has raised its key policy rates twice since February, allowed a flexible exchange rate and limited this year’s credit growth to prevent twin deficits in trade and balance-of-payments.

Inflation...

On Monday, Treasury Secretary P.B. Jayasundera told Reuters that inflation was likely to moderate to below 9% in coming months because of a slowdown in demand and credit growth.