Price crisis heading up

Inflation indicated by a year-on-year change in the Colombo Consumer Price Index, increased by 29.8% in the month of April, as per the department of census and statistics. Up from the previous record high of 18.7% by increases in food and non-food groups alike, the daily cost of living soars. Food inflation shot up by 46.6%, while non-food inflation increased by 22% in April alone and continues on a steep incline.

Prices of items that previously have remained relatively stable in the non-food category recorded increases due to changes in utility sectors. Transport, water, electricity and gas have soared leaving behind the everyday individual. Food inflation increased due to hikes in the prices of milk powder, rice, bread, dhal, sugar and even dried fish during the month. In partial response to curb rising inflation, the interest rate of the economy too was hiked in order to discourage spending.

Since independence from Britain in 1948, such hardships were only felt once before in the early 70s under Bandaranaike’s government. This crisis is partially due to the lack of foreign currency, which has meant that the country cannot afford to pay for imports of staple foods and fuel, let alone settle dollar-denominated debt, leading to acute shortages and very high prices. 

Most food items have recorded price increases through to the first quarter of next year, according to an economic survey, amid a crisis sweeping the economy. The latest Bloomberg survey of economists showed that consumer prices will likely stay at around 20% in the second and third quarters of this year as well. Nearly double the pace of projections made in January, and investments being in such poor form the force of these changes are slowly but surely being felt by the people.

The pace of price growth has been projected at 12% in the first quarter of 2023 while slowing to a 9.7% level for the full year. Growth forecasts were cut by 50 basis points to 2.8% for 2022, and by 80 basis points to 3.5% in the subsequent year. These abysmal levels mean only negative real returns in the foreseeable future. Economists even expect another two percentage-point increase in borrowing costs before October, in an attempt to temper demand and cool soaring inflation. Unemployment will likely increase to 5.6% compared to a 5.1% before. 

However, with Sri Lanka experiencing borderline runaway inflation, relatively speaking this is not a unique problem in the world right now. United States prices jumped 8.5% for the year in March, proving that the largest liberal economy in the world too, is struggling with inflation. Consumers around the world are paying much higher prices for basics like shelter, food and gasoline. Due to the Russia-Ukraine invasion further disruptions to supply chains cuts off access to oil, food exports and other necessities.

After a pandemic-related wave of higher prices, the conflict is now pushing global inflation past 6%. China and India, for example, may need to switch to cheaper cooking oil, as prices have surged 70% in some cases. Fuel prices, meanwhile, have shot up past 10 dollars a gallon in Hong Kong and other Southeast Asian countries are soon to follow.

Higher prices are leading to political turmoil, from growing support for anti-immigrant populist parties to worker protests in Europe. In the US, inflation is hitting hardest in politically divided areas where midterm elections will likely be the most contentious. Sri Lanka can now only hopefully wait for the global networks to bail out the economy, while this too shall pass.