Inflation slips on food prices

Reuters: Year-on-year inflation rate slowed to 9.5 per cent in August as prices for some vegetables moderated, surprising analysts who had expected the rate to accelerate from a three-and-a-half-year high of 9.8 per cent struck a month earlier.

On the negative side, the data released by the Department of Census and Statistics showed the annual average inflation for the past 12 months rose to 6.3 per cent in August from six per cent in July. Analysts polled by Reuters had forecast annual inflation in August would accelerate to 10.2 per cent, while the annual average inflation would rise to 6.3 per cent.             

The rupee losing 16.6 per cent against the dollar since November and a drought that hit some major farming areas in March, creating shortages of vegetables and rice, have been the key inflationary pressures.

Central Bank Chief Economist Swarna Gunaratne told Reuters that the bank expected annual average inflation to be at around seven per cent and the year-on-year figure to stand at 8.9 to nine per cent by the end of 2012.

The Central Bank kept its key policy rates unchanged in August after raising them twice since February, saying the increases were enough to moderate both credit growth and the trade deficit, while the spike in inflation was due to adverse weather conditions disrupting domestic food supplies.