ISSN: 1391 - 0531
Sunday, Augest 05, 2007
Vol. 42 - No 10
Financial Times  

Administered price revisions drive consumer prices

Administered price revisions that took place at the beginning of the month caused the Colombo Consumers’ Price Index (CCPI) to rise by 2.8 percent in July over June, marking a deviation from the usual seasonal pattern.

The Central Bank said the downward trend of the general price level observed over the recent months suffered a set back in July which registered a 17.6 percent increase on a point to point basis, as against the 13.0 per cent increase of the previous month. The upward revision of the price of kerosene by around 31 per cent, in response to escalating crude oil prices in the global market, and bus fares by 17.5 per cent in July, were the main contributory factors to the increase in the price level, which was further aggravated by the increase in price of bread, following the hike in wheat grain prices in the international market. The combined impact of the above increases alone raised the index by 2.1 per cent. Vegetables and sugar prices declined but was insufficient to offset the negative impact of the above price increases. Consequently, the annual average rate of the CCPI also moved upto 17.2 per cent in July from 17.0 per cent recorded in the previous month.

Though the administered prices led to an increase in inflation, the demand driven inflation is kept at bay through the continuing tight monetary policy. The reserve money programme recorded a success in July with reserve money reaching Rs. 247.2 billion, which was well below the indicative target of Rs. 253.8 billion set for July 2007. The achievement of reserve money targets will lead to deceleration of the growth in broad money supply and thereby containing demand driven inflation in the future, the statement from the bank said.

 

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