Movements in Colombo Consumers’ price index (CCPI)

PRICE INDEX: The general price level decreased in April, 2007 compared to the prices in the previous month continuing the declining trend for the third consecutive month for the year.

This is a deviation from the historical monthly behaviour for the month of April. In fact, the sub index for food decreased by 0.8 per cent. However, this impact was offset by the increases in the clothing, fuel and light, and miscellaneous sub indices reducing the overall decline in the index to 0.1 per cent (Table 1).

Table 1 - Monthly Changes

		Monthly Change of the	Monthly Change Expenditure
		Index %		Values Rs
Group Weight	Apr-06	Mar-07	Apr-07	Apr-06	Mar-07	Apr-07
All Items	100.0	2.7	-1.7	-0.1	227.75	-174.66	-8.42
Food 		61.9	2.8	-2.5	-0.8	168.62	-187.83	-56.41
Clothing	9.4	0.0	0.3	0.6	0.00	0.58	1.25
Fuel & Light	4.3	6.0	0.4	0.8	48.04	4.41	7.87
Rent		5.7	0.0	0.0	0.0	0.00	0.00	0.00
Miscellaneous	18.7	0.8	0.5	2.6	11.06	8.18	38.87

Prices of food commodities recorded mixed price changes due to the combined effects of increased supply of ceratin domestically produced food items, continuation of governments’ programme to stabilise the prices of ten essential food commodities, increased demand generated from the Sinhala New Year festival and escalation of fuel prices during the month.

However, on average, expenditure on food decreased by Rs. 56.41 Retail prices of rice further declined due to the low paddy prices recorded especially in Anuradhapura, Kurunegala and Ampara areas as a result of increased availability of stocks in those areas in response to the higher Maha harvest. Prices of vegetables too declined for the third consecutive month for the year.

Particularly, during the first two weeks of the month, prices declined remarkably due to the increased supply from main producing areas resulting in an overall decline in the vegetable sub index by about 3.5 per cent over the previous month. In contrast, the corresponding figure in the previous year was a 4.4 per cent increase.

Retail prices of sugar and dried chillies further declined in response to the low prices prevailing in the international market (Table 2).

Table 2 - Contribution to the monthly decrease in the Food Sub Index

Food Commodity	
Contribution to the 
	0.8% decrease in April 07	

Rice		-0.32
Vegetables	-1.02
Bread		0.00
Sugar		-0.07
Coconut		0.19
Fresh Fish	-0.03
Dried Chillies	-0.14
Other		0.62

However, these price decreases were offset to some extent by the price increases of eggs, meat, ceratin varieties of condiments, coconut, coconut oil, potatoes and tea dust which have relatively significant weights in the CCPI basket. Increased demand during the festival season contributed to these price increases.

In addition, price increases of certain items in the clothing, fuel and light and miscellaneous sub groups reduced the intensity of the decline in the overall index during the month. The partial impact of the increase in kerosene by Rs. 2 per litre with effect from 19 April 2007 contributed to the increase in the fuel and light sub index.

The increase in the CCPI was 16.3 per cent on a point to point basis in April, 2007 compared to 19.5 per cent recorded in the previous month. The annual average increase recorded in the index was 17.4 per cent.

On a point to point basis, the highest contribution to the overall increase of around 75 per cent came from food commodities which rose by 16.9 per cent in April 2007. The combined effects of both domestically produced and imported food commodities contributed to the increase in the food sub index.

Among the domestically produced food commodities rice, vegetables, eggs, most varieties of fresh fish, meat and coconut which have significant weights in the CCPI basket recorded price increases on a point to point basis.

The prices of bread and wheat flour also rose by 26 per cent 37 per cent respectively due to the high import prices of wheat grain.

Among the other major imported food commodities, the price increases of dhal (16 per cent), some varieties of condiments (15%-50%) and milk foods (3-9 per cent) too made a significant impact on the increase in the food sub index.

However, price decrease of sugar despite the depreciation of Sri Lankan Rupee made a negative impact on the overall increase in the food sub index.

Core inflation, which is the part of overall inflation sensitive to monetary policy and measured after excluding items with high price volatilities and administered prices dropped to 17.7 per cent on a point to point basis, from 18.6 per cent in March 2007.

The inflation projections indicate that the general price level would continue to decline on a point to point basis, which started from April, 2007.

A favourable influence is expected on inflation as a result of persistently tight monetary policy as the reserve money targets have already been met in the first four months of 2007.

However, there will be upward and downward risks associated with headline inflation influenced by possible changes in prices due to seasonal factors and administered price revisions. In response to the fuel price revisions effected thrice during March and April 2007, electricity charges too may be revised, affecting the overall inflation.

Further, the increase in prices of wheat flour by Rs. 3.50 per kilogram with effect from May 4, 2007 will also adversely impact on the index as wheat flour, bread and bakery products bear significant weights in the CCPI basket.

In addition, even though L.P. gas is not an item included in the CCPI basket, the government approval to increase the gas prices would have an indirect upward risk on inflation in the coming months.