Sri Lanka’s inflation rises to 3.2-pct in January 2014

COLOMBO (EconomyNext) – Sri Lanka’s inflation accelerated to 3.2 percent in January 2014 from 2.1 percent in December, with a sharp rise in food prices, data from the state statistics office showed.

In the month of January the Colombo Consumer Price Index rose 1.7 percent, the sharpest gain seen since June 2012 when the index gained 1.9 percent during the month.

Food prices have risen 12 percent in the 12 months to January, with prices rising 3.8 percent during the month.

The statistics office said vegetable prices rose due to a drought.

However since September credit growth has picked up sharply, with private and state loan demand surging leading to pressure on the balance of payments.

Analysts say Sri Lanka’s Central Bank should consider raising interest rates regardless of whether the index declines next month due to purely non-monetary reasons such as price falls due to price cuts.

Past experience has shown that when subsidies are financed by bank credit inflation tends to go up.

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