Sri Lanka central bank is creating inflation: economist

Mar 17, 2008 (LBO) -- Sri Lanka's central bank is accountable for inflation and claims of 'cost push' factors for rising prices cannot be accepted when well managed countries are reporting single digit price increases, an economist has said.









"Inflation is a purely monetary phenomenon," lead economist of LirneAsia Harsha de Silva, who is a strong advocate of low inflation, told members of the island's Chamber of Industries earlier this month.

"Whether it is oil prices or salary increases, unless and until it is validated with more money, inflation cannot happen.

And I am just one of the millions of people who say this."

The most widely known person who said it is Milton Friedman, a monetary economist who won a Nobel Prize for his work on the quantity theory of money.

Friedman is famously known for saying that 'inflation is always and everywhere a monetary phenomenon'.

De Silva says that policymakers at one time thought that employment could be created by money printing because of a supposed relationship between employment and inflation demonstrated by the so-called Philips curve.

But Ned Phelps, an associate of Friedman, has won a Nobel Prize in 2006 for showing that money printing and inflation could not cre