Sri Lanka opposition says new inflation index artificial

Monday, 24 January 2011 00:01 -     - {{hitsCtrl.values.hits}}

  • Govt set to revamp inflation index again in April 
  • New index to lower food, power weighting-sources

(Reuters) - Sri Lanka’s revamped inflation index will artificially lower the rate to cool rising discontent over the cost of living, the main opposition said on Thursday. 

The Central Bank plans to start using the a new index in April, the Department of Census and Statistics has said, the second revision in three years. 

Recent floods have destroyed at least 21 percent of the staple rice crop. This, combined with higher international commodity prices, will drive up annual average inflation from the current level of 6.9 percent recorded in December, analysts say.

The Central Bank has forecast it to remain between 4 percent and 6 percent in 2011. Anecdotally, many Sri Lankans have complained of rising food prices and the cost of living, traditionally politically sensitive issues.

“The government is trying to change the index ahead of the crisis,” said Harsha de Silva, an opposition United National Party legislator, economist and frequent critic of government fiscal policy.

He also questioned the validity of the current inflation index, which the government’s Department of Census and Statistics (DCS) introduced in 2008 with a base year of 2002, replacing one that had existed since 1952.

“We have a problem with the data now. This government has dismissed all the international best practices,” he said, referring to the current market basket used to compile inflation.

The introduction of the 2002-based index, which excluded alcohol and tobacco and lowered the food component to 45 percent from 60 percent, came as the old one hit a record high annual and average inflation of 29.9 percent and 20 percent respectively.