ECONOMYNEXT – Sri Lanka’s state-run Ceylon Petroleum Corporation has hiked petrol by 20 rupees to 177 rupees a litre and auto diesel by 10 rupees to 121 rupees, as money printing depreciated the rupee and global commodity prices also went up due to Federal Reserve loose policy.
Petrol 95 Octane was raised up by 23 rupees to 203 rupees a litre.
Super diesel was raised by 15 rupees a litre to 159 rupees.
Kerosene has been raised by 10 rupees to 87 rupees a litre.
Subsidized kerosene is used by some factories to run furnaces and buses also mix them with diesel to keep costs down.
By end 2014 Sri Lanka had closed part of the gaps between the three fuels, but from 2015 under then Finance Minister Ravi Karunayake the gaps worsened again.
The late Finance Minister Mangala Samaraweera brought back formula based pricing, but in 2018 the central bank printed money creating a currency crisis, making the CPC borrow dollars
The central bank had earlier asked the Treasury to raise fuel prices.
Raising fuel prices reduces the disposable incomes of customers both businesses and individual and reduces non-oil imports keeping external and domestic sectors in balance protecting the exchange rate – in the absence of money printing.
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Sri Lanka has faced higher global and domestic and currency pressure amid record money printing from around February 2020.
The money was printed by the then leadership of the central bank and its advisors to ‘create a production’ economy.
At the time the central bank claimed there was ‘no demand driven inflation’ ignoring warnings by the public, media and classical economists.
Global commodity prices have also been going up amid record US money printing. Fed Chief Jerome Powell claimed that inflation was ‘transient’. As money printing fired an aggregate demand bubble creating shortages in some sectors, they were blamed on ‘supply chain.’
Sri Lanka usually blames inflation on imported inflation and raising administered prices. However when administered prices are kept down keeping the index down rates are kept low, and money is printed saying inflation is low and there is no need to hike rates. (Colombo/Dec22/2021)