Economist says (point-to-point) inflation rose last month most likely due to high government spending and not due to the upward revision of gas prices due to movements in the global market and the increase in prices of certain food commodities as stated by the Central Bank (CB).
Point-to-point inflation rose to 3.3% from to 2.9% in April 2009 as measured by the Colombo Consumers’ Price Index (CCPI). Economist Sirimal Abeyratne said two factors will influence future increases, one being the global markets which have declined and the other being the increasing government expenditure. Dr. Abeyratne said the CB has relaxed its tight monetary policy to increase liquidity and bring down interest rates. Currently, global market prices are declining which means import prices are also declining, therefore inflation will also decline.
Money supply is rising, partly due to the CB’s monetary policy and also because the government is having a serious budget problem this year. If the government chooses to externally finance the budget deficit, there will again be pressure on prices. Internally, the rising deficit and money supply will cause inflation to rise.
The net outcome of inflation depends on which of these factors has a bigger impact
Commenting on the US$1.9 billion loan the government is seeking from the International Monetary Fund (IMF), Dr. Abeyratne said he sees no reason for the loan being stopped as Sri Lanka is a member and is eligible. He said the IMF is supporting countries all over the world to solve their balance of payment problems. Dr. Abeyratne said he does not think political issues should come into play when considering granting the loan although it could be one reason as to why the loan has been delayed.
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