Sri Lanka’s January consumer price inflation eases to 53.2%
- 21 Feb 2023
Sri Lanka’s National Consumer Price Index (NCPI) eased year-on-year to 53.2 per cent in January, after a 59.2 per cent rise in December, the statistics department said on Tuesday.
Food prices were up 53.6 per cent in January from a year ago, while non-food inflation was 52.9 per cent higher, the Department of Census and Statistics said in a statement.
Sri Lanka hiked power prices by a hefty 66 per cent last week, part of efforts to nail down a $2.9 billion bailout from the International Monetary Fund (IMF), as the island struggles to find a way out of its worst financial crisis in more than seven decades.
The power tariff increase is the second in six months and is expected to slow the pace of inflation reduction, which has been easing since last September. “This is broadly in line with expectations as there is a high base effect,” said Udeeshan Jonas, chief strategist at equity research firm CAL.
“Power has become a small component of the overall inflation basket so there will be indirect impact but a significant increase is unlikely as many businesses will be unable to pass on the cost increase to consumers.”
The Central Bank of Sri Lanka (CBSL) is expected to keep interest rates steady next week after it raised them to the highest point in nearly two decades last year to fight soaring inflation. CBSL predicts that inflation will reach single digits at the end of this year.
The NCPI captures broader retail price inflation across the island nation and is released with a lag of 21 days every month.
The Colombo Consumer Price Index (CCPI), released at the end of each month, eased to 54.2 per cent in January, data showed. Meanwhile Sri Lanka’s cabinet has approved loan repayments worth $2.6 billion in the first half of this year, in line with its debt suspension plans, its cabinet spokesperson said on Tuesday.
The island of 22 million people is tangled in the worst financial crisis in over seven decades, triggered by a severe shortage of foreign exchange that forced the country to annouce a suspension of foreign debt repayments in April 2022.
However, Sri Lanka will continue to repay multilateral loans from several organisations including the World Bank and Asian Development Bank, cabinet spokersperson and Transport Minister Bandula Gunawardana told reporters.
The loan repayments will include $2 billion in foreign loan repayments and $540 million in interest payments.
Repayments will also include $709 million in dollar-denominated Sri Lanka Development Bonds and $46 million in interest payments, Gunewardana added.
Sri Lanka signed a preliminary agreement for a $2.9 billion bailout with the International Monetary Fund (IMF) last September but has to put its debt on a sustainable path before disbursements can begin.
“Talks with the IMF are at the final stage but they have not been concluded so it is imperative that public finances are handled carefully. These debt repayments will be done within the borrowing limits set in the budget for 2023,” Gunawardana said.
India and Paris Club members have declared support to help Sri Lanka’s debt restructuring but the island is still in negotiations with China, which is the largest bilateral lender, for simmilar financing assurances, Gunawardana said.
Meanwhile the latest electricity price rise in crisis-hit Sri Lanka has left stall owner Mohammed Lafeel in a quandary: the 66 per cent increase means he can’t afford to pay for electricity but can’t manage without it so goes deeper into debt to keep it on.
Over the last month, with inflation hovering at 55 per cent year-on-year, Lafeel says his income has fallen by about a third as fewer customers buy his knick-knacks as more of them struggle under the island’s worst financial crisis in seven decades.
Lafeel says he doesn’t know how he can repay the Rs300,000 ($835) he borrowed for his daughter’s wedding and has had to borrow more to reconnect the power at home after it was cut off because he hadn’t paid the bill.
“Everyone is under pressure,” Lafeel told Reuters at his stall next to the main railway station in the city of Colombo, days after the second power price increase since a 75 per cent rise in August. the burden.
“It’s not just the ovens, most of our machines need power,” Peiris said. “We’re struggling to maintain our business.”
About 200 of Sri Lanka’s 5,000 bakeries have shut down, said NK Jayawardena, president of the largest bakeries union, the All Ceylon Bakeries Association. Many of those still running have laid off staff, he said. “This power tariff increase is very unfair, especially when it comes on top of so much hardship,” he said.
