Although The Cost Of Living As Explained By Central Bank Is Rising, The Current Economic Policies According to the International Monetary Fund Needs To be Sustained Towards Economic Stability!
Posted on August 4th, 2012

LankaWeb Weekly Editorial

August 4th 2012

A recent report compiled by the Central Bank of Sri Lanka indicates that the cost of living is rising in Sri Lanka, where the stats released  show, with or without the consideration of price sensitive food and fuel in measuring inflation, which is the rate at which prices increase.  The incapacity of the opponents of the Government to comprehend this reality has then screaming about governmental negligence making it an issue of confrontation vis a vis a political platform towards their own objectives and is a distortion of reality.

In the simplest of terms, being a nation with a near non existent GDP, the intensity of population, the supply and demand factor and the burdgeoning cost towards tending to the consumer needs of the Nation becomes a daunting one  although measures of austerity and caution in spending are factors which could further alleviate Sri Lanka’s economic woes where Government spending in all probabilities could be halved towards lowering the national debt as many economic advisors seem to believe.

The Central Bank report refered to, points out that core inflation, which excludes price sensitive items such as fuel and food, had increased from 5.8 percent year-on-year in June to 6 percent in July which in a relative sense does not seem to be as alarming as the doomsday messengers seem to be howling about without looking at the overall pictire of what the Administration has had to contend with in post war Sri Lanka from many economic perspectives where it has accomplished a degree of acceptable stability and has not gone overboard despite some hardships endured by the average consumer which seems to be a fact of life in Sri Lanka today but given the populace of nearly 20 million the relativities never marginal enough to contain their disillussionment or their comprehension of the realities involved

Core inflation  as the Central Bank thereby suggests quite correctly is measured to gauge the underlying price movements in the economy, in this case prices are increasing, although some economists argue that it was unrealistic to leave out price sensitive food and fuel prices from the core inflation index.

In a related report released by the The International Monetary Fund (IMF) synonymously, headline inflation is said to have reached a three year peak at 9.8 percent in July 2012 mainly driven by food prices.
It has  also said Sri Lanka faces some risk from inflation: “Though growth is slowing, there is not much slack in the economy, and there is a risk of second-round effects from pass through of depreciation and energy price increases.”

Leaning further towards Administrative credibility it has further said that “the transition to a flexible exchange rate regime and winding down of foreign exchange market intervention has been a major achievement, and needs to be sustained. With a flexible exchange rate, the focus of monetary policy can shift increasingly to inflation control as a means for achieving broader macroeconomic stability, while allowing the exchange rate to act as a buffer for external shocks”,  which certainly seems to be a feather in the cap of the Rajapaksa Administration and by no means a slur as his opponents constantly attempt to point out whose rhetoric which for a greater part thereby becomes meaningless and of little appreciable value where the authorities in a capacity to attest to it ponts out that the Administration has done quite well given the circumstances. .

“In this context, the current monetary policy stance is appropriate, and a tightening bias should be maintained in the near term until further evidence of diminishing inflation pressures and credit demand emerge. Some two-way intervention to smooth exchange rate volatility is reasonable provided it does not adversely affect the target on reserve accumulation, while a gradual further relaxation of restrictions on banks’ open and forward positions would help to deepen the foreign exchange market,” it has further said.

The Central Bank issuing a statement on the current inflation data has summed up much of what has transpired within Sri Lanka  in recent times saying that ~ quote: “The Colombo Consumers’ Price Index (CCPI) increased by 0.9 per cent in July 2012 over the previous month, with the Index increasing in absolute terms to 166.7 from 165.2 in June 2012. The contribution to the monthly increase in the Index came mainly from price increases in the Food and Non-Alcoholic Beverages category (by 1.6 per cent) followed by the Non-Food category (by 0.3 per cent).

Somewhat unfortunately and related to a matter of timing there has been a governmental Faux Pas by ignoring a balance of payments crisis for more than six months, where economists have pointed out that the recent policy measures, although necessary and commendable, are hurting the people more than it would have been had these measures been taken much earlier.

“The increase in the prices of rice, coconut, fresh fish, sugar, fruits, vegetables and prepared food contributed to the increase in the food category of CCPI. The upward revision in the prices of wheat flour, fuel and milk powder has had an impact on the prices of prepared foods with a time lag.

However, a decline in the prices of red onions, big onions and limes was also reported during the month.

“Within the non-food category, prices increased in the sub-categories of health (by 1.9 per cent); clothing and footwear (by 1.1 per cent); furnishing, household equipment and routine household maintenance (by 1.1 per cent); miscellaneous goods and services (by 0.2 per cent) and transport (by 0.1 per cent). However, prices in the sub-category of housing, water, electricity, gas and other fuels recorded a decline of 0.3 per cent due to the reduction in prices of LP gas with effect from. 14 July 2012. Meanwhile, the prices in the sub-categories of communication; recreation and culture; and education remained unchanged during the month. The year-on-year (YoY) inflation rose to 9.8 per cent in July 2012 from 9.3 percent in June 2012, mainly due to the price increases in food category. Meanwhile, core inflation, continued its decelerating trend for the tenth consecutive month and reached at 5.5 per cent in July 2012, on an annual average basis, from 5.7 percent in June 2012, while increasing on a (YoY) basis to 6.0 per cent in July 2012 from 5.8 per cent in the previous month,”  end quote which according to the Central Bank is a recognition of the efforts made by the  Administration and points towards what many Sri Lankans fail to come to terms with that this Administration needs all the support it can get from everyone concerned  towards the progress that will, in the eyes of many analysts land Sri Lanka in the number one slot amongst developing nations within the region .

“Inflation, as measured by the Colombo Consumers’ Price Index (CCPI) (2006/07=100) computed by the Department of Census and Statistics, increased to 6.0 per cent in July 2012, on an annual average basis, from 5.8 per cent in the previous month which is not a death knell on the Nation’s Economy where given all the progress the nation has made towards economic stability it is an assertive and positive effort. The breakdown of statistics in percentage and numerical form may not be comprehensible for some but certainly provides an insight for those who do towards the pros and cons of this developing nation of ours and where it is headed!

This however does not give Carte Blanche to what on another note takes place at times surreptitiously as well as quite visibly where unscrupulous politicians and government officials take advantage of the financial responsibilities granted them to be blatant enough to line their pockets with financial resources intended towards the development of the Nation on various ventures where Sri Lanka cannot carry a slogan chanted by many discerning observers which suggests that as a result of the corruption of some in power ”  the rich get richer and the poor poorer ” something for the National Leadership to take by the horns where the path to National Progress must never be lined with National Shame and the punishment for financial irresponsibility on the part of some needing to be severe!

Only then will Sri Lanka emerge as a truly remarkable developing nation with a splendour that would perhaps take her back to the times when the world associated her with the term “Resplendent Isle “as some of the resplendency at times seems sadly tarnished today!

For the time being the observations of the Central Bank and The IMF should serve as confidence building factors towards the aspirations of all Sri Lankans where patience and tolerance could well be virtues!

6 Responses to “Although The Cost Of Living As Explained By Central Bank Is Rising, The Current Economic Policies According to the International Monetary Fund Needs To be Sustained Towards Economic Stability!”

  1. David Appuhami Says:

    I just realised the cost of living when I received a kilogram of Cashew nuts from Sri Lanka a few days ago. The price tag indicates one kilo of Cashew nut is around Rs2395 which is equivalent to £11.62. But a similar packet of cashew nut costs us in London approximately £6.60. Even though the UK cashew nuts are imported either from Vietnam or from India, but still cheaper than in Sri Lanka despite Sri Lanka produces export quality cashew nuts through a government corporation. That means,considering pricing levels in Sri Lanka, our earning capacity should be at least 50% higher than what we earn here in London in order to enjoy the same life style. So dear editor your argument does not make any sense at all.

  2. nandimitra Says:

    Creation of money by printing liberally is nothing but devaluing the currency. anything that is valuable therefore goes up in price such as land,housing etc .Excessve money is essentially stealing from the hard earning and giving it to the people with money to create more money. This is to the detriment of the majority especially the sinhalese ( who mainly not businessman) whose money is been stolen and given to the businessman to create more capital. The majority are been pauperised and a minority are benefitting.( mainly business community who are from the minorities) made worse by the fact that these businessman do not pay taxes and the government coffers are bare. (The pauperised majority to maintain living standards have to sell their valuables i.e. houses to survive. Hence the distinct demographic changes especially in the main economic centres). This makes it imperative that the government has to print more money to maintain the structure of the government. Inflation statistics are only a partial assessment of the increase in liquidity , Real assessment of the cost of living is the rate of increasing liquidity. Final result is you pauperise the majority and enhance the wealth of the minority The rich – poor divide is widened. This unfortunately is what is happening right throughout the world. This is immoral and one day will lead to violence.

  3. Dham Says:

    David Ayya,
    Did you taste the Lanka kaju nuts ?. I thought they are bigger and tastier that british Cashew nuts. Probablly kaju may be different to Cashew.

  4. Sunil Mahattaya Says:

    Dear DA,
    Sorry to disillussion you but the arguments put forward here are mere endorsements of the stats presented by the CB and IMF and their bearing on the Lankan economy which by comparison with some other countries still point towards promise for the future and suggest that the present regime is not slipping up realistically in maintaining a relatively stable economy if you want to call it that.
    And while Cadjunut prices in the UK offset against what it costs in SL are high it needs to be said given your reference to the sources from where they are exported ~ i.e. Vietnam and India there is a subtle difference in quality in the Lankan product acclaimed internationally as being far superior than the rest but when did Cadjunuts become part of the SL foreign exchange earners of repute one might ask given the volume exported which even at a modest estimate is quite visibly nominal ?

  5. Dham Says:

    Our nuts are bigger and tastier ! Must cost more !

  6. Sunil Mahattaya Says:

    What nuts specifically are you refering to ~ coconuts, arecanuts, peanuts or the cadjunuts all of which fetch a price in the open market? numbnuts excluded that is lol! which are around in vast quantities and worthless!

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