Inflation rises on tight food supplies

Reuters: Sri Lanka’s inflation rate in November surprisingly rose to a three-month high of 9.5% from a year earlier because of expensive vegetables and other food as heavy rain caused shortages, officials said on Friday.

Annual inflation reversed an easing trend and rose in November to a three-month high of 9.5 per cent, from 8.9% a month ago, according to data released by the State-run Department of Census and Statistics.

“Prices of foods and vegetables were high as heavy rains hit their supply,” said D.C.A. Gunawardena, Head of Prices and Wages Department at the State-run Statistics Department.

Annual average inflation, measured on a 12-month moving average basis, picked up for the sixth straight month to 7.2%from 6.8%in October.

Central Bank Governor Ajith Nivard Cabraal said last month annual inflation may slow to between 8.0 and 8.5% by the end of 2012.

Heavy rain followed by some flooding in some major farming areas has hit the food supply.

Annual inflation hit a 42-month high of 9.8% in July after months of drought.

Analysts however said imported inflation remained a major concern.

“This trend will continue until December with the seasonal demand. But it will ease in January once the seasonal demand has dried up,” said an analyst at a Colombo-based private bank on condition of anonymity as he is not authorised to talk to the media.

Though the Sri Lankan Rupee appreciated about 0.15% against the US dollar this month, it has fallen 15.2% since November 2011 and 12.5% this year.

Sri Lanka has to import most of its consumer goods and all of its oil needs.

The Central Bank kept key policy rates at three-year highs in November to fight demand-driven inflation.

The Central Bank has raised its key policy rates twice since February, allowed a flexible exchange rate and limited this year’s credit growth to prevent twin deficits in trade and the balance of payments.