Business | Economy

Sri Lanka inflation highest in five years

Sri Lanka's annual inflation rate rose to 19.8 per cent in May, the highest level in over five years, due to rising prices of food and vegetables, putting pressure on the central bank to raise rates.

  • Reuters
  • Published: 23:48 May 30, 2008
  • Gulf News

Colombo: Sri Lanka's annual inflation rate rose to 19.8 per cent in May, the highest level in over five years, due to rising prices of food and vegetables, putting pressure on the central bank to raise rates.

The 12-month moving average increased from 18.7 per cent in April as supply shortages boosted food prices, the government's Census and Statistics Department said on Friday.

A Reuters survey had expected the data to show annual average inflation of 19.6 per cent and the change over a year to be 26 per cent.

Consumer prices in May jumped 26.2 per cent from a year earlier, outpacing 25 per cent in April's data, it said.

Both the 12-month average and the change between May this year and a year earlier were their highest levels since Jan. 2003, as far back as the latest index introduced in December goes.

"Prices of vegetables, fish and dhal shot up sharply," D.P. Rajapaksa, a senior statistician at the department said. Food accounts for 45.5 per cent of the weighting in the new index.

New measure

The Census and Statistics Department introduced the current index in last December, with 2002 as the base year, saying the old measure was outdated.

Despite quickening inflation, the central bank kept its key interest rates steady for the 15th straight month in May.

The overnight repurchase rate stands at 10.5 per cent and the reverse repurchase rate at 12 per cent. Both rates are at their highest levels since 2002, but well below T-bill rates, which commercial banks use as a reference for their own lending rates instead of the official rates. The benchmark 91-day T-bill rate last stood at 17.14 per cent.

Analysts say that the central bank's interest rates should be higher.

"With high oil prices, the central bank should think of increasing the policy rates to curb inflation," said Geeth Balasuriya, assistant research manager at HNB Stockbrokers.

The central bank had originally aimed to contain bring inflation down to 10-11 per cent by the end of 2008.

Central bank governor Ajith Nivard Cabraal said last month the target would be tough to reach unless oil prices retreated to about $85-$90 a barrel.

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