Ceylon FT: March headline inflation, the rate at which prices increase, remained unchanged at a 25-month low of 4.2%, the Department of Census and Statistics (DCS) said yesterday (31).
The year-on-year change to the Colombo Consumers’ Price Index was unchanged at 4.2% in March 2014, from 4.2% the previous month, the lowest since reaching 2.7% in February 2012.
The annual average change in the index eased to 5.7% in March 2014, down from 6% the previous month, the lowest since reaching 5.6% in May 2012.
The core annual rate of inflation, which excludes price sensitive items such as food, energy, transport, increased to 3.4% in March 2014, up from 3.1% the previous month, an indication that underlying price movement is on an upward trend, after hitting a low 2.1% last December.
“General price levels increased 0.1% in March 2014 compared to the previous month. The Colombo Consumers’ Price Index (base: 2006/07=100) for all items for March was 177.9. This increase represents an expenditure value of Rs 40.67 in the ‘Market Basket’,” the DCS said.
It said that most varieties of rice, milk powder, infant milk powder, coconut oil, dried fish, cheese, butter, eggs, mango, papaw, ginger and tea dust experienced ‘slight’ price increases during the month.
On average, expenditure on food items increased by Rs 25.98 during the month, the statistics office said.
“During this month, price increases were noticed in the sub categories of food and non alcoholic beverages and miscellaneous goods and services. Housing, water, electricity, gas and other fuels showed an insignificant decrease while clothing and footwear, furnishing, household equipment and routine household maintenance, healthcare, recreation and culture and education showed insignificant increases during the month. The sub categories of communication and transport remained unchanged during the period under reference,” the DCS said.
“The rate of inflation as measured by the CCPI on a year-on-year basis was 4.2% in March 2014. It is worthwhile to mention that year-on-year inflation has been registered as a one-digit figure for 62 months continuously.
“On a year-on-year basis, the highest contribution to the overall increase of around 87% came from non-food commodities which increased by 4% in March 2014. The combined effects of both domestically produced and imported food commodities contributed to the increase in the food sub index. Among the food commodities, rice, vegetables and fish and sea food which have substantial weights in the CCPI basket recorded price decreases on a year-on-year basis. Under the non-food category, the prices of diesel, kerosene oil, petrol and gas have not changed during the reference period,” the DCS said.
Earlier last month the Central Bank kept monetary policy rates on hold on benign inflationary pressures but said that the prevailing drought could put pressure on food prices.Standard Chartered Bank said the Central Bank may not change monetary policy rates until the third quarter of this year if inflation remained range-bound and private sector credit growth remained low.
“The latest GDP and inflation data suggests that the CBSL is facing an improving growth-inflation trade-off. The 2013 GDP growth rate, which was released at the beginning of this week, surprised on the upside,” Standard Chartered Bank said.
“Relative to our forecast of 6.8% growth in 2013, official statistics reveal that the economy grew by 7.3%, with growth increasing sharply in the last quarter of the year (8.2%).
“Though our forecasts for Q4 were close to the realized numbers for the agricultural and services sectors, the main upside surprise came from growth in industry – we expected a 2.7% growth rate, versus 10.7% realized.
“Strong GDP data stands in sharp contrast to the continued weakness we see in private credit growth, which fell further in January to 5.2% from 7.5% in December 2013. It now stands even further below the CBSL’s target of 16% for the year-end,” Standard Chartered Bank said.
The International Monetary Fund in a recent study said that economic growth higher than 6.75% could cause overheating.
“Private sector credit demand is still very sluggish, but once it picks up we may see inflation build up. We also need to be cautious about credit growth boosting imports,” a market analyst said not wanting to be named. Growth of private sector credit from domestic banks fell to 4.9% in January 2014, down from 7.1% a month ago, falling sharply from 16.4% a year ago, latest Central Bank data showed, with businesses paying back loans as total government borrowings breach the Rs 1 trillion mark.
New loans generated by domestic banks to the government amounted to 24.3 billion during the month and the Central Bank provided credit to the government to the tune of Rs 42.2 billion.
Public corporations paid back Rs 2.5 billion to the domestic banking sector on a net basis during the month.
The private sector paid back bank loans on a net basis amounting to Rs 43.4 billion.
Benchmark Treasury bill yields have fallen 421 basis points over the past 12 months in response to the Central Bank’s loose monetary stance, but the average weighted lending rate of the country’s banking system fell just 129 basis points, Central Bank data showed.
The average weighted prime lending rate, applicable to high net worth individuals and institutions fell 483 basis points over 12 months.
New loans to the private sector amounted to Rs 155.3 billion in 2013, a four-year low. New loans generated by the domestic banking system to the government surged to Rs 435.1 billion in 2013, a four-year high.
Economists have pointed out that the debt-driven, government spending-led economic growth experienced over the last few years was not sustainable, not creating jobs and was driving up inequality.
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