The Central Bank yesterday almost downplayed the impact on food supply and prices from the severe floods.
“Weather related factors and supply disruptions have led to increases in prices of some selected food items time to time. However, these price increases in the domestic economy are expected to have only a transient effect on domestic inflation,” the Central Bank said as part of its statement post January monetary policy review.
It also said current monetary developments do not indicate any significant demand pressures in the economy emanating from second round effects of these price increases. It said inflation, as measured by the year-on-year change in the Colombo Consumers’ Price Index (base=2002) was 6.9 per cent in December 2010. Annual average inflation in 2010 was 5.9 per cent. “The continued stability of the Sri Lanka rupee has also cushioned price increases of imported commodities, while measures taken by the government, particularly downward adjustments to tariffs applicable to imported commodities, helped reduce price pressures further. In the coming months, domestic agricultural production is expected to increase along with the increase in the extent of land cultivated. In addition, the enhanced capacity utilisation in many sectors of the economy, with the development of infrastructure, reasonable productivity gains and greater efficiency of capital employed, would help ease domestic price pressures,” the Central Bank said.