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Sunday October 2nd, 2022

Sri Lanka inflation rises to 6.8-pct in July 21 amid MMT, currency fall

ECONOMYNEXT – Sri Lanka’s nation-wide inflation measured by a National Consumer Price Index accelerated to 6.8 percent in July 2021 from 6.1 percent in June, data from the state statistics office showed.

Sri Lanka’s National Inflation had been above the targeted 4-6 percent for three months, as the monetary authority said there were ‘supply constraints’ or ‘food inflation’ a part of a repertoire of excuses central banks that produce monetary instability usually give.

“There is no identifiable theory that says a part of the inflation is cost-push and a part is monetary,” EN’s economic columnist Bellwether says.

“US Fed Chief Arthur Burns who broke the Bretton Woods system and shattered the centuries old gold standard by ending convertibility used to go around claiming that there were two types of inflation, though the exact percentage of cost-push vs monetary inflation was not given.”

“The Fed is now insisting that the global commodity bubble it had fired with ‘stimulus’ is transitory.”

Classical economists call the practice of attributing real economy reasons for inflation, including ‘supply constraints’ and ‘wage spiral inflation’ while expanding the money supply as ‘monetary policy neglect’.

After giving various excuses why monetary policy should not be tightened, the central bank belatedly raised its overnight policy rates last week. However most of the money is printed via a one year de facto rate in the form of a ceiling Treasuries yeild which has made bond auctions dysfunctional.

A part of Sri Lanka’s inflation also comes from the Powell Bubble as imported and exported commodities rise in dollar values.

Modern central banks that cause economic chaos, also use ‘core inflation’ to remove the effects of their actions on commodities, which respond faster to stimuli than for example services.

Sri Lanka’s central bank has also printed money and the rupee has depreciation as convertibility has been lifted for most current transactions at its declared non-credible peg of 203 to the US dollar.

Analysts had warned several times that the 6-8 percent inflation target was too high to maintain the currency peg (Sri Lanka’s central bank collects reserves) as similarly high targets had caused currency crises in 2011, 2015/16 and 2018. (Colombo/Aug24/2021)

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