The Central Bank said this week that the New Colombo Consumer Price Index CCPI(N) recorded a 1% increase in the general price level in December, 2007 over the previous month, moving in line with the historical monthly behaviour for the month of December. It said food commodities recorded mixed price changes due to combined effects of increased supply of certain domestically produced food items and increased demand generated during the festive season. However, on average, expenditure on food in the CCPI(N) basket increased leading to an increase of 1.0 per cent in the food sub index. The highest contribution to the increase was from rice followed by meals purchased outside. However, the prices of vegetables, on average, declined by around 7 per cent, contributing to offset the price increases of other food items to some extent.

The increase in the CCPI(N) was 18.8 per cent on a point to point basis in December, 2007 compared to 19.3 per cent recorded in the previous month. The annual average increase recorded in the index was 15.8 per cent.

Price increases of both imported and domestically produced goods contributed to the overall inflation. The overriding influence on aggregate inflation came from domestically produced goods, which represent around 75 per cent of total consumption expenditure. The contribution from food has been increasing over time as a result of price increases recorded for both domestically produced and imported food items. The low production of rice, disturbances in distribution of agricultural products due to adverse security situation in the Northern and Eastern provinces, high cost of transportation due to escalation of fuel prices and high wheat and milk powder prices in the international market were the major factors responsible for the price increase of food items. However, government’s programme to stabilize the prices of ten essential food commodities from time to time during the year contributed to curtail the pressure on food prices to some extent.

Among the key food items, the annual average price increases of rice(18% – 35%), wheat flour(45%), bread(44%), dhal(34%), milk powder(18%), coconut(27%) and eggs(25%) were significant. Due to the relatively high weights of rice(4.82%), milk powder(4.17), meals bought outside (6.22%) and coconut (2.33%), the impact of price increases of those items was significant on the overall increase in the index.

Among the non food items, price increases of L.P. gas, kerosene, petrol and diesel in 2007 over 2006 had both direct and indirect impact on inflation during the year.

Movements in the CCPI (N)

The Index for December, 2007 = 178.1
The Index for November, 2007 = 176.4
Monthly increase = 1.7
Percentage increase = 1.0