Inflation hits record high on drought

Reuters: Sri Lanka’s consumer price inflation hit a record high of 6.8% in February under a new index, Government data released on Tuesday showed, pushed up by the impact of a lingering drought and base-year effects.

This could be a cause of concern as the Central Bank has said the conduct of monetary policy will be strengthened through the move towards a flexible inflation targeting (FIT) framework, said analysts.

The inflation, measured on the Colombo Consumer Price Index (CCPI), rose to 6.8% in February from a year earlier, accelerating from the previous month’s 5.5% rise under a revised base-year and market basket.

Inflation measured on a 12-month moving average basis also hit an all-time high of 4.6%, compared with the previous month’s 4.3%.

“The rise is led largely by base effects, while impacts of drought on food and beverage inflation added further to the overall increase,” said Trisha Peries, an analyst with Frontier Research.

“At present, we are not seeing too much of an impact from the depreciation (of the rupee) relative to the drought which continues to dominate the rise in inflation.”

Core annual inflation, which excludes fresh food, energy, transport, rice and coconuts, rose to 7.1% in February, compared with the previous month’s 7.0%, the index with a new base year of 2013 showed.

The rupee has fallen over 1% this year, resulting in expensive imports.