Inflation eases in January but CBSL issues warning of upside risks

• CCPI based headline inflation eases further in Jan.
• CBSL warns of upside risks to disinflation path from possible upward adjustments in domestic energy prices and any associated second round effects, delays in passing downward adjustments of global energy and food prices to domestic consumers

Headline inflation, as measured by the year-on-year (Y-o-Y) change in the Colombo Consumer Price Index decreased to 54.2% in January 2023 from 57.2% in December 2022. 

The decline in the headline inflation is broadly in line with the disinflation path envisaged by the Central Bank of Sri Lanka (CBSL) in January 2023.

The Food inflation (Y-o-Y) decreased to 60.1% in January 2023 from 64.4% in December 2022, while the Non-Food inflation (Y-o-Y) decreased to 51.0% in January 2023 from 53.4% in December 2022. 

Monthly change of CCPI recorded at 0.43% in January 2023 mainly due to price increases observed in items of Food and Non-Food categories, which were 0.23% and 0.20%, respectively. Meanwhile, annual average inflation rose to 49.6% in January 2023 from 46.4% in December 2022. 

The core inflation (Y-o-Y), which reflects the underlying inflation in the economy, decreased to 45.6% in January 2023 from 47.7% in December 2022, whereas annual average core inflation increased to 37.6% in January 2023 from 34.6% in December 2022.

Looking ahead, based on the latest macroeconomic projections of the CBSL, the declining trend of inflation is expected to continue through 2023, supported by subdued demand conditions owing to tight monetary and fiscal policy measures, anticipated improvements in domestic supply conditions, and the expected pass through of easing global energy and food prices to domestic prices, along with the favourable statistical base effect. 

However, CBSL said there are upside risks to this disinflation path arising from possible upward adjustments in domestic energy prices and any associated second round effects, delays in passing downward adjustments of global energy and food prices to domestic consumers, etc. 

“Nevertheless, factors such as the reduced purchasing power of the public could soften inflationary pressures, exerting downside risks to inflation projections,” CBSL added.