Sri Lanka’s national inflation soars to 8.6-pct in March

ECONOMYNEXT – Sri Lanka’s country-wide inflation soared to 8.6 percent in March 2017, accelerating from 8.2 percent in February, making the central bank one of the worst performing in the world.

Consumer prices in the capital measured by the Colombo Consumer Price Index also rose to 7.3 percent in March, up from 6.8 percent in February.

Sri Lanka’s central bank has a habit of policy when domestic credit cycle turns positive and also prints money adding fuel to the fire, eventually generating balance of payments crises.

The country has a so-called ‘soft-pegged’ or ‘half-baked’ monetary regime where both a domestic anchor (inflation index) and an external anchor (intervention in forex markets to prevent appreciation and true floating) which are inherently contradictory.

In January the current regime pushed the central bank print tens of billions of rupees to repay a maturing bond, which analysts say is a newly emerging threat to monetary and economic stability of the country.

During March the index fell slightly by 0.3 percent, showing a pause from steady rise in prices seen from August.

Sri Lanka’s central bank’s performance this year is among the worst in the world, and just behind Turkey which saw inflation of 11.3 percent in March and Ukraine, which saw 15.1 percent.

Pakistan reported 4.9 percent, India reported 4.6 percent inflation in March, Hong Kong (currency board or fixed exchange rate) 1.7 percent and Malaysia 5.1 percent.

In Sri Lanka high inflation is usually attributed to non-monetary causes. Base-effects, drought, supply shortages, rising oil prices (diesel in particular) are among the most common cost-push fallacies floated as excuses for inflation the country. (Colombo/Apr21/2017).





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