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Wednesday October 5th, 2022

Sri Lanka national inflation hits 11.1-pct in November 2021 after money printing

ECONOMYNEXT – Sri Lanka’s nation-wide inflation measured by the National Consume Price Index accelerated to 11.1 percent in November 2021 up from 8.3 percent, after record money printing to maintain low interest rates, despite a surging budget deficit.

The National Consumer Price Index hit double digits for the first time since it started to be compiled from 2014.

The NCPI grew 3.1 percent in November to 155.3 points.

Food prices jumped 5.5 percent in the month.

The food sub-index was up 16.9 percent in the 12-monts to November 2021, while non-foods also rose 1 percent in the months.

Food prices have risen 35 percent since August 2019 when the central bank began inflationary policy buying back bonds from old deficits to inject liquidity as part of ‘output gap targeting’.

In December and January of every year food prices generally rise but in 2021 the rise had been unusually high, amid heavy rains and a fertilizer ban which hit farmers.

From February 2020, record volumes of money was injected through central bank profits transfers, outright deficit finance and Covid-refinance.

Later ceiling prices were placed on bonds auctions, and hundreds of billions of rupees of securties were bought into the central bank balance sheets to general liquidity and balance as the auctions failed.

Sri Lanka authorities have a repertoire of excuses to print money and keep rates down and delay rate hikes until currency crises have been triggered.

Sri Lanka inflation is going up as the Federal Reserve also follows loose policy and fuel and export prices of goods also go up.

However the money printing central bank was set up in 1950 under US advice supposedly to follow ‘independent monetary policy’ and break up the Sterling Area currency boards, according to critics.

Sri Lanka keeps inflation indices down by suppressing market pricing of energy, uses that also as an excuse not to allow rates to go up and then later claims, ‘administered prices’ pushed up inflation.

There have been calls to change the monetary law to block the ability of the Monetary Board create inflation and currency depreciation with discretionary independence. (Colombo/Dec22/2021)

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