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Colombo District Inflation Eases to 0.9% in May as Both Food and Non-Food Prices Decline

Inflation in the Colombo district eased to 0.9 percent in May, down from 1.5 percent in April, as both food and non-food prices continued their months-long decline. However, prices may rise slightly in the coming months due to higher staple prices caused by current weather conditions and increased economic activities supported by lower interest rates.

On a monthly basis, prices fell by 0.6 percent in May, following declines of 1.9 percent in March and 0.8 percent in April. After a sharp rise over the past two years, prices began to stabilize from 2023 onwards, largely due to easing global energy and commodity prices.

Additionally, the availability of foreign currency, bolstered by normalizing tourism and remittances, helped bring imported goods to an acceptable price level. However, the Central Bank’s previous policy of raising interest rates to extreme levels resulted in a prolonged economic downturn, pushing many businesses out of operation and causing widespread poverty and hunger.

Annual food prices remained unchanged in May after a 2.9 percent rise in April, while monthly food prices fell by 1.2 percent. Non-food prices slightly accelerated to 1.3 percent in May from 0.9 percent in April, though monthly non-food prices declined by 0.3 percent, following a 0.7 percent drop.

Nearly every sub-category, except for clothing and footwear and consultation fees to specialist doctors, saw price declines from April to May, including energy prices. Core prices, excluding the volatile food, energy, and transport sectors, rose by 3.5 percent, up from 3.4 percent in April.

The softer prices allowed the Central Bank to maintain its dovish monetary policy stance for nearly a year. This week, the Central Bank left key policy rates unchanged to allow previous rate cuts to take full effect but kept the door open for future cuts based on new data. The Central Bank projects inflation to stay within its medium-term target of 5.0 percent, barring any external shocks.

While the Central Bank claims victory in the fight against inflation, it now faces the challenge of fostering economic growth. However, Central Bank Governor Dr. Nandalal Weerasinghe stated this week that they do not have a growth mandate. If the Central Bank’s mandate excludes economic growth due to the new Central Bank Act or their own policies, there is a call to revert to the old Monetary Law Act or adjust their approach to include economic growth in their mandate.

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