By Sanath Nanayakkare

High inflation has steadily cooled from last year’s flash-point although price pressures continue to feel like an uphill battle for consumers, State Minister of Finance Ranjith Siyambalapitiya said speaking to journalists.

“People will scold me for saying this. But the truth is, there isn’t that frustration about persistent price hikes overnight like in last year. That trend has been contained through policy tools. Yes, you may see that increased prices still remain on certain items, but you don’t see prices increasing at the rate that had caused such a shock to households and businesses across the country in 2022.”

“Food inflation had exceeded 90% in July 2022 as against 2021. By July 2023, headline inflation decreased to 6.3% from 12.0% in June 2023. And the food category, nearly after four years, recorded a year-on-year deflation of 1.4% in July 2023. This reflects a trend of reducing prices in the food category. One may name specific items and argue that price markups are still high, but in general, when you look at the commonly used food basket of a household, there is clearly a reduction in its cost. The people are not noticing something. The times they experienced price shocks have now come to an end, and inflation expectations are well anchored.”

Meanwhile, the Central Bank of Sri Lanka said on July 31 that inflation is expected to moderate further and stabilise around the targeted level over the medium term.

“The disinflation process is supported by the impact of tight monetary and fiscal policies, improvements on the supply side, the softening of energy and food inflation, and the favourable base effect,” the Central Bank said.

However, State Minister Siyambalapitiya last week revealed that it had been agreed to settle around US$ 750 million for Sri Lanka Development Bonds (SLDBs) in Sri Lanka rupees, under the Domestic Debt Optimization programme.

“As a result, the banks now have to collect this amount of dollars to provide to their dollar depositors when they need it. To accumulate the required dollars, banks may limit the release of dollars to the market. This development coupled with other factors, has led to the recent depreciation of the rupee and an increase in the value of the dollar,’ he said.