Annual inflation rate hits five-year high

COLOMBO, (Reuters) - Sri Lanka’s annual inflation rate as measured on a 12-month moving average rose to 17.7 percent in March, the highest level in five years and underlining the price pressures facing the economy.

The International Monetary Fund warned Sri Lanka this weekend that loose fiscal and monetary policies were feeding inflation, while analysts said financial markets have stopped using the Central Bank rates for referencing because they are too low.

The 12-month moving average increased from 17 percent in February as supply shortages boosted food prices, the Census and Statistics Department said on Monday.

Consumer prices in March jumped 23.8 percent from a year earlier, outpacing 21.6 percent in February’s data, it said.
Both the 12-month average and the change between March this year and a year earlier were their highest levels since Jan. 2003, as far back as the latest index introduced in December goes.

A Reuters survey had expected the data to show annual average inflation of 17.5 percent and the change over a year to be 22.5 percent.

“Prices of food such as rice, vegetables, fish and coconut went up sharply due to short supply during the month,” said D.C.A. Gunawardhana, director at the department.

Food accounts for 45.5 percent of the weighting in the new index.

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and Statistics Department introduced the new index in December, with 2002 as the base year, saying the old measure was outdated.

The Census and Statistics Department said on Friday it would publish the old index alongside the new one for another six months.

Under the old index, the annual inflation rate measured on a 12-month moving average stood at 18.8 percent, the highest since it hit 21.5 percent in 1990. It was up from 18.1 percent in February.

March consumer prices, according to the old index, rose 28.1 percent from a year earlier, a 10-year high and up from 24 percent in February, the department’s Web site showed.

Despite double digit inflation, the central bank held its key policy rates steady in March for the 13th month in a row, keeping the overnight repurchase rate at 10.5 percent and reverse repurchase rate at 12 percent.

Analysts say that the central bank’s interest rates should be higher. Banks base their own lending rates on three-month treasury bill rates, which are around 18.5 percent.

The IMF said on Saturday that Sri Lanka’s inflation was partly due to loose fiscal and monetary policies, rather than high oil prices

“Increases in oil prices in the recent past, a common shock to most economies in the region, cannot explain most of the increase in inflation in Sri Lanka,” the IMF said in a report.