August 02, Colombo (LNW): Colombo district inflation increased to 2.4% in July up from 1.7% in June. This rise is attributed to fading base effects. Despite this year-on-year increase, monthly prices fell by 0.5% in July compared to June, driven by a decrease in food and non-food prices. These declines followed notable reductions in power tariffs and fuel prices earlier in the month.
The Central Bank remains optimistic about inflation risks being balanced in the medium term, provided there are no external shocks.
Consequently, it kept its medium-term inflation target at 5% and did not reduce interest rates by 25 basis points.
The Bank believes there is potential for credit growth and economic expansion without causing further inflationary pressures.
Sri Lankan consumers are still feeling the strain from high inflation rates experienced in 2022 and increased tax burdens, which have significantly reduced disposable incomes.
In July, food prices rose by 1.5% from the previous year, a slight increase from the 1.4% rise in June.
However, monthly food price inflation slowed considerably to 0.1% in July, compared to a 2.8% rise between April and May. Price increases for some staple items were mitigated by decreases in other staples.
Non-food prices also contributed to the softer inflation reading in July, with a year-on-year increase of 2.8%, up from 1.8% in June.
The non-food index dropped by 0.7% due to significant cuts in electricity tariffs, and reductions in fuel and gas prices. Authorities have announced no further adjustments to gas prices for August.
Core inflation, which excludes volatile items like food, energy, and transport, remained steady at 4.4% year-on-year for July, unchanged from June.
Inflation and the cost of living have become pressing concerns in Sri Lanka. According to the Department of Census and Statistics, the inflation rate rose to 2.4% in July from 1.7% in June 2024.
Both food and non-food items have been significantly affected, with food prices experiencing more pronounced increases compared to non-food items.
Several factors have influenced inflation, including cost-push and demand-pull inflation. Cost-push inflation results from supply shortages caused by import restrictions
Demand-pull inflation arises from increased demand despite limited supply, leading to higher prices.
Although it’s challenging to determine which factor has had the greatest impact, both contribute to the economic burden on the public.
Given the current economic climate, if the Rupee remains stable, imports will continue to be costly for Sri Lankans.
Economic policies have affected everyone, but those with lower incomes are hit hardest. The primary issue is low wages, which are often informal and fixed, unlike the more formal employment with inflation-adjusted wages.
Consequently, those with fixed low incomes face reduced purchasing power and higher food expenses, exacerbating income disparity between the rich and the poor.
