ECONOMYNEXT – Sri Lanka’s consumer prices rose 0.5 percent in January 2023, with food prices up 0.6 percent, while annual inflation fell to 54.2 percent from 57.2 percent due to a so-called based effect.
Sri Lanka’s food prices which fell absolutely for three months, reversed direction in January 2023.
The food components of the widely watched Colombo Consumer Price Index which hit a high of 323.3 points in September fell to 311.3 points up to December 2023 amid tight monetary policy.
The broader CCPI Index went up from 311.3 points to 313.3 with non-food prices also going up.
In December the central bank bought more dollars than it sold, indicating effects of deflationary policy and negative private credit.
The food index is up 113 percent since overtly inflationary policy began in February 2020 with a central profit transfer and 134 percent since July 2019 when prudent policy ended with outright purchases of securities from banks.
December is a month where expatriate workers send more money and exporters pay salaries early but real money demand goes up due to cash withdrawals from banks.
But the central bank relaxed monetary policy in January 2023, blocking a window where excess rupee reserves were privately sterilized, forcing banks to use the cash.
Separately longer-term money was injected to banks replacing overnight borrowings.
Analysts had warned the central bank not to go overboard with monetary loosening since an exchange rate peg at 360/370 to the US dollar was fragile and it would be better to float the currency re-establish credibility, re-peg and allow liquidity to be created by acquisitions of foreign assets. (Colombo/Jan23/2023)