ECONOMYNEXT – Sri Lanka’s falling food prices was driving domestic manufacturing activities up, but falling external demand was depressing other sectors especially apparel, according to a Purchasing Managers Index compiled by the central bank.
The Manufacturing Index was 49.3 in August 2023, almost at the 50 point level, up from 44.6 points in July.
“The overall increase in New Orders was mainly driven by the manufacture of food & beverages sector, in response to the continuous downward revisions in retail prices,” the statement said.
“Further, most of the respondents in the manufacture of food & beverages sector mentioned that there was an upturn in their overall business activities during the month.”
Sri Lanka’s food and some other traded goods prices, have come down absolutely especially after March 2023, when the central bank allowed the currency to appreciate under Governor Nandalal Weerasinghe, after hiking rates and running broadly deflationary policy.
A currency appreciation and falling prices increases the disposable incomes at current salary levels, without the wait required for salaries to be hiked.
However, falling prices are usually anathema for Western academic inflationists whose ideas drive countries with monetary instability and social unrest.
The 2008 housing bubble was fired by an 8 -year credit cycle with ultra-low interest rates driven by the so-called ‘False Deflation Scare’ of Ben Bernanke who critics say misled Alan Greenspan, ending the Great Moderation period and driving the global economy into chaos (Delfation: Making sure “It” doesn’t happen here.)
Falling prices in traded goods many also leave more money to be spent on services.
Sri Lanka’s services sector continued to expand strongly in August 2023, with the sector PMI at 57.6 points, on the back of 59.5 points in July.
New Businesses increased in August 2023 compared to July 2023, particularly with the increases observed in financial services, wholesale and retail trade, other personal activities, professional services and education sub-sectors. (Colombo/September17/2023)