COLOMBO: Sri Lanka’s headline inflation for the 12-months to June slowed to 0.1 percent from 0.2 percent a month ago mainly due to the administered energy prices translating into lower non-food inflation, the data released by the Department of Census and Statistics (DCS) showed.
Annual average inflation also slowed to 1.7 percent from 1.9 percent in May 2015.
The decrease in water bills, electricity, L.P. gas, kerosene oil, train and bus fair and petrol and diesel prices mainly contributed to the reduction in non-food inflation. As a result, the contribution of non-food items on inflation was -1.73 percent.
On a year-on-year (yoy) basis, contribution to inflation by food commodities has increased by 1.83 percent.
However the sustainability of low inflation largely depends on world crude oil prices which still remain low thus benefitting through low energy prices passed onto the end consumer who now enjoys a relatively higher disposable income.
However it was only last week Standard Chartered Bank (StanChart) cautioned of increased inflationary pressure towards the fourth quarter of 2015 due to rising crude prices.
“Inflationary pressure is likely to increase only in Q4-2015, due to the unfavorable base effect and rising crude prices,” StanChart said in a recent research report.
However, the inflation is expected average around 2 percent by the end of 2015, well below Central Bank’s 3 percent to 5 percent target for the year, StanChart further said.
June is the fifth consecutive month Sri Lanka has seen its headline inflation remaining below 1 percent.
Meanwhile, the Colombo Consumer Price Index (CCPI) increased by 1.8 index points or 1.03 percent in June to 181.6 from 179.8 in May.
“This increase represents an expenditure value of Rs.519.53 in the “Market Basket”, the DCS said in a statement.
Sri Lanka’s monetary policy has been targeting the country’s inflation, which is at extremely benign levels and thus providing space for the monetary board to ease key interest rates in the economy.
The Central Bank Governor, Arjuna Mahendran in May said the country’s future monetary policy and the interest rate trajectory would largely depend on inflationary behaviour.
Meanwhile, on a month-on-month basis the CCPI increased by 1.03 percent due to the increase of food items by 0.86 percent and increase of non-food items by 0.18 percent respectively.
