Measures of Underlying Inflation in Sri Lanka

Abstract

This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.During the first half of 2008, Sri Lanka witnessed significantly higher inflation than most other emerging Asian countries. Inflation has since declined amid declining world commodity prices and tight monetary policy. Given the sensitivity to global commodity prices, a core inflation measure could be useful for monetary policy. The purpose of this paper is to compare the performance of Sri Lanka's existing official measure of core inflation against alternative measures. Our findings suggest that the existing measure does contain information about the future path of headline information, but may be inadequate as a communication tool for the Central Bank. JEL Classification Numbers: C50, E31, E52

The Determinants of Inflation in Sri Lanka

“…Until recently, the economy of Sri Lanka has been going through tough years of constant and consistent increase in the general price level (for a more detailed discussion, see Central Bank of Sri Lanka, 2008;Perera, 2005;Thenuwara, 1997). According to Gupta & Saxegaard (2009), the rapid rise in world commodity prices during 2008, most notably fuel and food prices, coincided with a sharp increase in inflation in Sri Lanka during the first half of the year. Inflation in Sri Lanka has mostly stayed in the double digits over the past five years and averaged nearly 20 per cent during 2007-2008, far exceeding the inflation rates observed in other countries in the region.…”