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Colombo District Sees 0.8% Price Decline in April Despite Expectations of Rise

In April, prices in the Colombo district experienced a decline of 0.8% compared to the previous month. This reduction was attributed to decreases in both food and non-food prices, a departure from the usual trend where prices tend to rise during festive periods.

Inflation, as measured by the Colombo Consumer Price Index (CCPI), dropped after a 1.9% decrease in March, but the annual measurement recorded a 1.5% increase.

Annual inflation declined to 0.9% in March due to lower prices and higher base effects from the previous year. Consequently, there were anticipations for slightly elevated prices in April compared to March.

Food prices saw a 2.9% increase in April compared to the previous year, a decrease from the 3.8% rise in March, while non-food prices rose by 0.9%, following a 0.5% decline the previous month.

However, on a monthly basis, food prices experienced deflation for the third consecutive month, falling by 1.0% in April. Non-food prices also declined by 0.7% after a 1.9% decrease in March.

Core prices, excluding volatile items such as food, energy, and transport, rose to 3.4% from 3.1% in March, indicating underlying price pressures in the economy.

The softer prices provide the Central Bank with more flexibility to ease policy further. In March, it reduced policy rates by 50 basis points.

Some economic analysts attribute the recent price decline to the appreciation of the rupee by approximately 9.0% so far this year, which offset previous price pressures from increased Value Added Tax and supply interruptions.

Therefore, they do not anticipate sustained inflation as the strength of the dollar could increase again, and favorable base effects may dissipate in the second half of the year.

The Central Bank aims for 5% inflation in 2024.

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