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Wednesday May 18th, 2022
Bonds & Forex

Sri Lanka national inflation hits 14-pct in December 2021 after money printing

Sri Lanka national inflation hits 14-pct in December 2021 after money printing

ECONOMYNEXT – Sri Lanka’s nation-wide inflation measured by the National Consume Price Index accelerated to 14 percent in December 2021 up from 11.1 percent, after record money printing to maintain low interest rates amid a surging budget deficit and downward pressure on the rupee.

The National Consumer Price Index hit double digits for the first time in November since it started to be compiled from 2014 and the December figure is the record high under the measurement.

The NCPI grew 3.7 percent in December to 161.0 points.

Food prices jumped 6.3 percent in the month while non-food prices rose 1.3 percent.

The food sub-index was up 21.5 percent in the 12-months to December 2021, while non-foods also rose 7.6 percent in the months.

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

Generally food prices rise in December and January every year due to seasonal demand but in 2021 the rise had been unusually high amid supply shortage due to 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 securities 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. The central bank raised the key policy rates on Thursday (20) by 50 basis points for the second time in five months. However, analysts say the tightening should have been done much earlier to curb inflation.

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/Jan22/2022)

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