Wednesday, July 6, 2022

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SL’s actual inflation rises to 132 percent making the middle class destitute

SriLankan poor people become the poorest of the poor and the middle class people have been pushed into poverty because of the economic impacts of COVID-19. Lockdowns, lay-offs, and an economic recession.

Many formerly middle-class families are now destitute as their  fixed income is not sufficient to meet their day to day needs owing to the high cost of living  and dependent on aid organisations for their basic needs, an official survey revealed.

The prices of essential food commodities have skyrocketed and most of the middle class and poorest people had to cut down their three meals per day to one or two.

Prof. Steve Hanke, who is the Professor of Applied Economics at Johns Hopkins University warned that the poor people are crushed by inflation.

“The official inflation rate is 21.5% per year. and the accurate inflation is 132%. So the real inflation rate is 6 times higher than the official inflation rate,” he claimed.

When you have inflation that high it is a complete catastrophe. And not only you have an economic catastrophe associated with the high inflation but you have a real problem because the inflation hits the poor people more than it hits the rich people,” he added

Noting that such a situation ultimately creates a political problem, Professor Steve Hanke warned “Sri Lanka looks like everything is going to come to a stop.

“The poverty rate in Sri Lanka will witness further increase in 2022, as the country’s economic crisis worsens. The World Bank (WB) in its Spring Update on the South Asian region said that the poverty rate in Sri Lanka would increase to 11.7 percent in 2022, compared to 10 percent in 2019. 

The World Bank’s April 2022 update of Macro Poverty Outlook for Sri Lanka asserted that the heightened fiscal and external risks as well as the challenging political situation pose significant uncertainty to the economic outlook and the country faces an external financing gap in 2022 and beyond. 

“Sri Lanka needs to address the structural sources of its vulnerabilities. This would require reducing fiscal deficits especially through strengthening domestic revenue mobilisation,” the World Bank said. 

While fiscal consolidation needs to be accompanied by tighter monetary policy to contain pressures on inflation, the global development lender said the island nation also needs to find feasible options to restore debt sustainability. 

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