Rampaging inflation
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Fuel. The single-most commodity that people are desperately chasing after as the country’s economic crisis deepens. It has aggravated all our problems and disrupted the vital supply chain that keeps the cogs of the economy functioning. In another angle to this dilemma and nightmarish situation for scores of the population, one may ask what happened to our efforts to strike oil off the Mannar basin many years ago. Did our exploration efforts fail for economic and policy reasons or was it a political blunder?On the other hand, having oil won’t solve our problems unless we have decent politicians sans corruption. Take Nigeria for example. It is an oil-rich nation with 2.2 per cent of the world’s oil reserves but owing to widespread corruption the country is still poor.
As I reflected on these thoughts, the phone rang on Thursday morning. It was Seeni Bola, my banker friend (so named by friends after he once boasted that other banks were handling ‘seeni bola’ deposits compared to his bank), on the line.
“Did you hear, the Central Bank (CB) has increased interest rates? This is because inflation is rising,” he said.
“I don’t think this will bring down inflation because, according to some economists, there are too many structural problems in the economy for inflation to be tackled by the traditional mode of increasing interest rates to rein in inflation,” I said.
On Thursday, the CB increased policy interest rates to 14.30 per cent and 15.50 per cent, sending a sharp signal to the market to follow suit in increasing interest rates. This comes on the back of a sharp increase in the CB policy interest rates in April by 7 per cent to 13.50 per cent and 14.50 per cent, respectively. This was the largest ever interest rate hike in recent times.
A day before (Wednesday) the rates were increased, the Treasury-bill market sensed that rates would be increased on Thursday. Interest rates for T-bills rose to 28.08 per cent for 3-month bills and 28.74 per cent for 6-month bills compared to 23.85 per cent and 24.40 per cent at the previous auction (last week). Banks, using a cheap credit borrowing window by the Central Bank, are expected to pump in more and more money into T-bills which have become a lucrative investment for many.
However, as stated earlier, it remains to be seen whether these high rates will curb inflation which has surged at 54.6 per cent (headline inflation-Colombo Consumer Price Index) in June, a sharp hike from 39.1 per cent in May 2022, while food inflation (in the same index) increased to 80.1 per cent in June 2022 from 57.4 per cent in May. Rampaging inflation has reached the hyperinflation stage of the economy. Hyperinflation is described as “a very high and typically accelerating inflation”.
As I ended my call with Seeni Bola, my attention was drawn to the conversation of the trio under the margosa tree. “Ammo…..eih elavalu mechchara ganan. Hema dama mila wedi wenava (Ammo……why are the prices of vegetables so high? It’s increasing every day),” exclaimed Kussi Amma Sera. “Eh indana mila ihala yana hinda. Anduwata kisima palanayak ne mae mila-ganan gena (That’s because fuel prices are rising. The government has no control over these prices),” noted Serapina.“Eth elavalu wawanne deshiyawa-ne. Eva anayanaya karanne nae-ne (But vegetables are grown locally and not imported),” argued Mabel Rasthiyadu. “Elavalu-wala mila ihala gihin thiyenne beda harina mila wedi wela thiyena hinda (The cost of vegetables has gone up because the cost of distribution has risen),” Serapina gently pointed out.
Queues are a nightmare for many users not only of vehicles but also gas and kerosene. If one is to measure productivity of the working class, that is down sharply as people have to spend hours in queues – often having to forego at least one meal a day. How can you expect people to be productive when their minds are troubled, anxious and tired? Many small-time employers/small businessmen – who have no access to fuel unlike big-time exporters for whom the government has made arrangements for a regular supply to their factories – are suffering in queues or at their businesses. Spending 3-4 days in a fuel queue – leaving the car/bike in a queue but worried as to what would happen; then waiting in anticipation for the fuel – how can we go on like this?
Public agitation is growing and fears are rising that the police and the armed forces would face the brunt of the people’s wrath. Already, at least 16 people have died in queues while public anger has reached a never-before stage. Frequent clashes between police/armed forces and the public are being reported from many locations.
In all this, inflation is a buzzword. People cannot afford three meals a day and supermarket shelves are empty with fewer goods, while cheaper markets don’t seem to have many shoppers around.
The cost of goods is surging. Here are some examples of consumer prices per kg in June 2022 and in the same month last year in Colombo compiled by the Department of Census and Statistics: Bandakka Rs. 426.79 (up 122 per cent from June last year); bitter gourd Rs. 624.28 (up 113.4 per cent); red pumpkin Rs. 268.60 (up 127.6 per cent); green chillies Rs.268.60 (up 127.6 per cent); lime Rs. 772.47 (up 124.5 per cent); locally-grown potatoes Rs. 379.71 (up 88.8 per cent); green beans Rs. 753.85 (up 149.1 per cent); beetroot Rs. 447.18 (up 113.3 per cent); tomato Rs. 808.17 (up 267.1 per cent); dried chillies Rs. 2034.14 (up 223.1 per cent); raw red rice Rs. 233.12 (up 127.5 per cent); wheat flour Rs. 286.82 (up 206.3 per cent); Mysore dhal Rs. 628.30 (up 190.0 per cent); fish prices up by an average 60-125 per cent; eggs (per egg) Rs.43.13 (up 155.2 per cent); bread Rs. 179.52 (up 212.7 per cent); while milk powder has risen by over 200 per cent.
The government has announced the formation of a Cabinet Sub-Committee on Cost of Living headed by the President and including the Prime Minister and other ministers. But it’s highly unlikely that this committee can rein-in inflation or provide some relief to lower income groups.
With the country’s precarious financial situation, even the Prime Minister’s pronouncement that there would be a relief package for lower income groups in a mini-budget to be presented sometime this month, remains doubtful. Tax revenue is at a low ebb, while public sector costs are rising with the government unable to pass-on the actual costs of fuel to the consumer.
The country is bankrupt: That’s official, coming from the Prime Minister’s own words.
As I sipped a second mug of tea collected from the kitchen earlier, I realised that there doesn’t seem to be an end in sight to the fuel crisis or the rising cost of living, notwithstanding the CB’s efforts to squeeze liquidity from the system and force people to save rather than spend!
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