Could the Central Bank’s predictions come true? The controversial new Colombo Consumers’ Price Index recorded a 26.6 percent point to point change in July 2008. The official inflation indicator recorded a 28.2 percent point to point change in June and the Central Bank said inflation would peak in July and begin to ease there onwards. A few may get carried away into thinking that this translates to a decrease in prices. But it is not the case. Prices continue to be high. It is just that the rate in which prices increase have declined. An official of the Census and Statistics Department said that the prices of goods in the CCPI basket had recorded insignificant increases over July, when compared to the previous months. This is because food prices have remained static for the most part while vegetables and rice price increases had declined according to expected seasonal trends. "This trend may continue in August as well with the Yala season and harvesting of other vegetable crops," he said. Since January, the monthly change of the index had hovered between a low of 1.6 percent (in May) and a high of 3.7 percent (in June). The monthly change in July was 0.2 percent. The new index, introduced this year, is based on expenditure survey of the Greater Colombo area in 2002. The basket of goods that cost Rs.100 then, costs Rs. 206.4 in July 2008 (Rs. 205.9 in May and Rs. 198.5 in April, 2008). In the new index, food items are given a weight of 46.71 percent, where as in the old index, food items consisted of 68.3 percent of total expenditure based on a survey in 1952 survey. The weights for the selected goods had been recommended by a technical committee appointed by the Treasury which prompted some analysts to call it a ‘cooked-up’ inflation index. Alcohol and tobacco are not included in the new index in keeping with government policy but analysts believe that by not doing so, the index failed to capture the spending patterns of working class people. When inflation peaked in June the Central Bank said the upward trend was due to escalating fuel, commodity and food prices across the globe. It said that inflation was expected to subside after reaching its peak in June and July based on the Central Bank’s analysis of the price increases of commodities in international markets which it said, was slowing down. |
