Sri Lanka 12-month inflation falls in September

Sept 30, 2008 (LBO) – Consumer prices in Sri Lanka's capital Colombo increased by 24.3 percent in the 12-months to September 2008, down from 24.9 percent in August, the government's statistics office said. The census department said food prices fell by 0.2 percent while fuel, household maintenance, transport and recreation showed an increased.

The central bank has kept policy tight by keeping a tight check on liquidity in the banking system and controlling the growth of the monetary base.

But in the past two weeks it has been pumping billions of rupees of liquidity into the banking system amidst a reserve outflow to maintain a peg with the US dollar.

Maintaining the peg could undermine the entire monetary policy framework of the bank.

The revised Colombo Consumer Price Index (CCPI) grew by only 0.4 percent in September.

The index has come under fire as an attempt to understate inflation, with an entire sub-group dropped due to political considerations.

Earlier this month a startling revelation was made that the statistics office was spreading some price increases across more than one month.

Sri Lanka's central bank has kept monetary policy tight since the beginning of