Historic deflation as July consumer prices fall for first time

• July CPI -0.2% y/y vs +0.1% in June
• Prices fall due to lower costs of non-food items
• Ravi K says does not expect impact on interest rates 

Reuters: Sri Lanka posted its first fall in consumer prices in July due to lower electricity, kerosene and transportation costs, but the Finance Minister does not see it paving the way for lower interest rates.

The Department of Census and Statistics said on Thursday consumer prices in July fell 0.2% from a year earlier, the first time prices have been negative since March 1995. June inflation had hit a new low of 0.1%.

“The main contributor for this decline was the major decrease in non-food prices,” the department said. Finance Minister Ravi Karunanayake told Reuters prices fell as a result of lower costs of essential goods and also as a result of efforts to curb corruption.

“I do not see this helping to reduce interest rates further as this is a result of a sporadic cycle. Inflation could move up and down a little bit in the future,” Karunanayake said.

The new Government has reduced administrative prices and the costs of some essential goods as promised since coming to power in January.

The Central Bank has estimated year-end annual inflation at 3% and its chief Arjuna Mahendran told Reuters earlier this month there could be a steep rate cut if there is a stable government in place after 17 August Parliamentary elections.

“This is just a statistical reflection,” said Sirimal Abeyratne, an economics professor at University of Colombo. “I do not see this will have any impact on the economy.”

Annual average inflation, measured on a 12-month moving average basis, eased to a fresh low of 1.3% from the previous low of 1.7% hit in June.