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FINANCIAL CHRONICLE™ » FINANCIAL CHRONICLE™ » Inflation in Sri Lanka

Inflation in Sri Lanka

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1Inflation in Sri Lanka Empty Inflation Explained Mon Dec 12, 2011 12:17 pm

sriranga

sriranga
Co-Admin
What's Inflation?
Inflation is divided into two types: Price Inflation and Monetary Inflation, the first type (about prices) is when there is a rise in the general level of prices of goods and services over a period of time, the second type (monetary) is when there is a rise in the quantity of money in an economy. Both types are in many times interrelated, and both have negative effects on the economy and individuals.

Effects of Inflation
Most effects of inflation are negative, and can hurt individuals and companies alike, below is a list of "negative" and “positive” effects of inflation:

Negative effects are:
- Hoarding (people will try to get rid of cash before it is devalued, by hoarding food and other commodities creating shortages of the hoarded objects).

- Distortion of relative prices (usually the prices of goods go higher, especially the prices of commodities).

- Increased risk - Higher uncertainties (uncertainties in business always exist, but with inflation risks are very high, because of the instability of prices).

- Income diffusion effect (which is basically an operation of income redistribution).

- Existing creditors will be hurt (because the value of the money they will receive from their borrowers later will be lower than the money they gave before).

- Fixed income recipients will be hurt (because while inflation increases, their income doesn’t increase, and therefore their income will have less value over time).

- Increased consumption ratio at the early stages of inflation (people will be consuming more because money is more abundant and its value is not lowered yet).

- Lowers national saving (when there is a high inflation, saving money would mean watching your cash decrease in value day after day, so people tend to spend the cash on something else).

- Illusions of making profits (companies will think they were making profits while in reality they’re losing money if they don’t take into consideration the inflation rate when calculating profits).

- Causes an increase in tax bracket (people will be taxed a higher percentage if their income increases following an inflation increase).

- Causes mal-investment (in inflation times, the data given about an investment is often deceptive and unreliable, therefore causing losses in investments).

- Causes business cycles (many companies will have to go out of business because of the losses they incurred from inflation and its effects).

- Currency debasement (which lowers the value of a currency, and sometimes cause a new currency to be born)

- Rising prices of imports (if the currency is debased, then it’s purchasing power in the international market is lower).

"Positive" effects of inflation are:
- It can benefit the inflators (those responsible for the inflation)

- It be benefit early and first recipients of the inflated money (because the negative effects of inflation are not there yet).

- It can benefit the cartels (it benefits big cartels, destroys small sellers, and can cause price control set by the cartels for their own benefits).

- It might relatively benefit borrowers who will have to pay the same amount of money they borrowed (+ fixed interests), but the inflation could be higher than the interests, therefore they will be paying less money back. (example, you borrowed $1000 in 2005 with a 5% fixed interest rate and you paid it back in full in 2007, let’s suppose the inflation rate for 2005, 2006 and 2007 has been 15%, you were charged %5 of interests, but in reality, you were earning %10 of interests, because 15% (inflation rate) – 5% (interests) = %10 profit, which means you have paid only 70% of the real value in the 3 years.

Note: Banks are aware of this problem, and when inflation rises, their interest rates might rise as well. So don't take out loans based on this information.

- Many economists favor a low steady rate of inflation, low (as opposed to zero or negative) inflation may reduce the severity of economic recessions by enabling the labor market to adjust more quickly in a downturn, and reducing the risk that a liquidity trap prevents monetary policy from stabilizing the economy. The task of keeping the rate of inflation low and stable is usually given to monetary authorities. Generally, these monetary authorities are the central banks that control the size of the money supply through the setting of interest rates, through open market operations, and through the setting of banking reserve requirements.

- Tobin effect argues that: a moderate level of inflation can increase investment in an economy leading to faster growth or at least higher steady state level of income. This is due to the fact that inflation lowers the return on monetary assets relative to real assets, such as physical capital. To avoid inflation, investors would switch from holding their assets as money (or a similar, susceptible to inflation, form) to investing in real capital projects.

The first three effects are only positive to a few elite, and therefore might not be considered positive by the general public.

How to Survive Inflation?
Tips to avoid the negative effects of inflation are only suggestions and don’t constitute any legal advice, therefore you’re free to use your own judgment depending on circumstances, to be more prepared to face inflation effects you need to be aware of those effects, so if you haven’t done so, please read some of them above, here are some tips:
- Be wise when holding cash, whether in your home or in your savings account, if you’re earning 5% interest on the money you have in your bank, and inflation rate is 10% then you’re in reality losing 5% and not earning anything.

- Be careful when buying bonds, high inflation rates completely destroy the value of long-term bonds.

- If you have a variable-rate mortgage, fix it if you can find a good deal, have a low fixed interest rate or 0% interest if you can find one.

- Invest in durable goods or commodities rather than in money. Check out our commodities list.

- Invest in things that you're going to use anyway and will serve you for a long time.

- Invest for long-term capital gains, because short term investments tend to give deceptive results or sense of making profits while in reality you’re not making profits.

- Learn about bartering which is trading goods or services without the exchange of money (it was very popular in hyperinflation times).

- Manage wisely your recurring monthly bills such as (phone bills, cable TV...), it would help to reduce them or eliminate some of them.

-Same goes with ephemeral items (movies, restaurants, hotel rooms...) they’re not bad if you spend money on them in moderation.

-Ask yourself, do I really need these things I’m spending my money on? Think how much and how often you will need something before buying it.

-Use the money saving tips such as: you need to reduce your consumption of things that are rising rapidly in price (eg, gas) without having to reduce your consumption of goods that are rising less rapidly or even falling in price (eg, clothes).

-Buy only what you need, especially objects that have multi-tasks, and are considered durable goods.

The conclusion from all this is: You don’t have to live cheap, just live smart!

Money and Inflation
Money is considered a storage of value. Normally if you were to sell a car for 100 gold coins, you should be able to go back and change that money in for another car tomorrow or the next week or the next month. When money holds its value, people feel safe saving it. Inflation weakens the function of money as a storage of value, because each unit of money is worth less with the passing of time and increase of inflation, so people tend to spend money on something else which can play the role of “the storage of value”.

Other terms related to inflation are:
Deflation: a fall in the general price level.
Disinflation: a decrease in the rate of inflation.
Hyperinflation: an out-of-control inflationary spiral.
Stagflation: a combination of inflation, slow economic growth and high unemployment.
Reflation: an attempt to raise the general level of prices to counteract deflationary pressures.
Depression: a severe and prolonged recession characterized by inefficient economic productivity, high unemployment and falling price levels.
http://crisistimes.com/inflation.htm



Last edited by sriranga on Mon Dec 12, 2011 4:04 pm; edited 2 times in total (Reason for editing : To add the Source link)

http://sharemarket-srilanka.blogspot.co.uk/

2Inflation in Sri Lanka Empty Re: Inflation in Sri Lanka Mon Dec 12, 2011 9:32 pm

soileconomy

soileconomy
Vice President - Equity Analytics
Vice President - Equity Analytics
thanx.Sriranga.
This will be important to every citizen.
Valuable record to be saved in our PCS.

3Inflation in Sri Lanka Empty Re: Inflation in Sri Lanka Wed Dec 14, 2011 2:57 pm

K.Haputantri

K.Haputantri
Co-Admin
Long term investments in stocks will be a good way to beat inflation.

4Inflation in Sri Lanka Empty Re: Inflation in Sri Lanka Sat Feb 23, 2013 1:51 pm

gamakak


Stock Analytic
Stock Analytic
thanks Very Happy

5Inflation in Sri Lanka Empty Re: Inflation in Sri Lanka Thu Mar 07, 2013 11:17 am

jonny

jonny
Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
Thanks ...Very educative and informative article to be referd ti Smile me to time....

sriranga

sriranga
Co-Admin
May 31, 2013 (LBO) - Consumer prices in Sri Lanka's capital Colombo rose 7.3 percent in the 12 months to May 2013 accelerating from 6.4 percent in May mostly due a power tariff hike, data from the state statistics office showed.

The Colombo Consumer Price Index gained 2.3 percent during the month, driven by a 9.9 percent gain in the housing and utilities sub-group. The sub-index was up 13.5 percent year on year.

Sri Lanka's inflation has been moderating after a spike in mid 2012 after the currency depreciated due to a central bank accommodated credit bubble fired by energy subsidies.

The Central Bank cut interest rates last month despite advice from the International Monetary Fund to keep policy on hold.

Sri Lanka's government has seen revenues falling requiring higher interest rates to bridge the deficit without central bank accommodation.http://www.lankabusinessonline.com/news/sri-lanka-inflation-accelerates-to-7.3-pct-on-power-tariff/2062142965

http://sharemarket-srilanka.blogspot.co.uk/

7Inflation in Sri Lanka Empty CBSL -Inflation increases in May 2013 Sat Jun 01, 2013 2:12 am

sriranga

sriranga
Co-Admin
http://www.cbsl.gov.lk/pics_n_docs/latest_news/press_20130531eb.pdf

http://sharemarket-srilanka.blogspot.co.uk/

8Inflation in Sri Lanka Empty Colombo Consumers Price Index, May 2013 Sat Jun 01, 2013 2:15 am

sriranga

sriranga
Co-Admin
http://www.cbsl.gov.lk/pics_n_docs/latest_news/press_20130531e.pdf
Inflation in Sri Lanka Ccpi10

http://sharemarket-srilanka.blogspot.co.uk/

9Inflation in Sri Lanka Empty Re: Inflation in Sri Lanka Sat Jun 01, 2013 9:51 am

kukumarx


Manager - Equity Analytics
Manager - Equity Analytics
The worst is yet to come!

On manufactured products, the price increases due to the electricity price hike are yet to come in. It will take several months for this to slowly feed into the system.

Also people in the service trade are yet to adjust for the hike. What is holding back price rises these days (may) is that demand is very low. As demand picks up (probably towards august)they will adjust prices.

Thus the inflation numbers will continue to remain high for the next few months at least.

10Inflation in Sri Lanka Empty CB explains why inflation rose in May Sun Jun 02, 2013 11:28 pm

Redbulls

Redbulls
Director - Equity Analytics
Director - Equity Analytics
Inflation, as measured by the Colombo Consumers’ Price Index (CCPI) (2006/07=100) and computed by the Department of Census and Statistics, increased to 7.3% on a year-on-year basis in May 2013 from 6.4% in the previous month. The inflation rate on an annual average basis remained unchanged at 8.8% in May 2013 as recorded in the previous two months.

Inflation in Sri Lanka Char10

Core inflation on a year-on-year basis decreased to 5.7% in May 2013 from 6.1% in the previous month while it increased marginally on an annual average basis to 6.6% in May 2013 from 6.5% in April 2013.

The CCPI increased by 2.3% in May 2013 over the previous month, with the index increasing in absolute terms to 173.9 from 170 in April 2013.

Inflation in Sri Lanka Char210


The contribution to the monthly increase in the index came mainly from price increases in the Non-Food category by 3.7%. Within the Non-Food category, prices increased in the sub-categories of Housing, Water, Electricity, Gas and Other Fuels (by 9.9%); Recreation and Culture (by 2.7%); Miscellaneous Goods and Services (by 0.4%); Education (by 0.2%); Clothing and Footwear (by 0.1%); and Furnishing, Household Equipment and Routine Household Maintenance (by 0.1%).

The increase in the sub category of Housing, Water, Electricity, Gas and Other Fuels was totally due to the impact of the upward revision in the electricity charges with effect from 20 April 2013. Meanwhile, the prices in the sub-categories of Health, Transport and Communication were unchanged during the month.

Further, the prices in the Food and Non Alcoholic Beverages sub-category also recorded an increase of 0.6% in May. The price of most varieties of vegetables, fresh fish, chicken, red onions, limes and milk powder increased during the month. However, a decrease in the prices of some varieties of fruits, eggs, big onions and sugar was reported.
http://www.ft.lk/2013/06/03/cb-explains-why-inflation-rose-in-may/

salt

salt
Vice President - Equity Analytics
Vice President - Equity Analytics
http://www.lankabusinessonline.com/print/sri-lanka-inflation-accelerates-to-7.3-pct-on-power-tariff/2062142965

May 31, 2013 (LBO) - Consumer prices in Sri Lanka's capital Colombo rose 7.3 percent in the 12 months to May 2013 accelerating from 6.4 percent in April mostly due a power tariff hike, data from the state statistics office showed.

The Colombo Consumer Price Index gained 2.3 percent during the month, driven by a 9.9 percent gain in the housing and utilities sub-group. The sub-index was up 13.5 percent year on year.
All sustained inflation however is monetary in nature though it may show in an index in the form of rising prices of individual items.

Sri Lanka's inflation has been moderating after a spike in mid 2012 after the currency depreciated due to a central bank accommodated credit bubble fired by energy subsidies.

The current high inflation is coming partly from rupee depreciation triggered by the Central Bank trying to accommodate a 'supply shock' which hit the country from 2011 in the form of low rainfall and higher oil prices, analysts say.

Sustained high oil prices are also monetary and come from a weakening of the US dollar against commodities especially at a time when global demand is weak and the US itself is producing record amount of crude and gas at lower cost.

Such shocks, which hit the credit system through losses in energy enterprises which are filled by a surge in bank loans, and requires higher interest rates to counter, which was not allowed by the Central Bank.

Even if prices of energy was raised at the time, which can reduce savings in the banking system by expanding consumption expenditure, a slightly higher interest rate can help balance the supply of savings and credit in the economy.

Even now analysts say slightly higher interest rates can help either reduce overall consumption and boost savings, or cut credit demand following the rise in energy prices.

The Central Bank cut interest rates last month despite advice from the International Monetary Fund to keep policy on hold.

Sri Lanka's government has seen revenues falling requiring higher interest rates to bridge the deficit without inflationary central bank accommodation. But the rise in energy prices in turn will reduce credit demand from energy utilities.

Redbulls

Redbulls
Director - Equity Analytics
Director - Equity Analytics
The consumer demand for chicken dampened in the first quarter this year due to a drop in purchasing power hindered by the inflation, which remained elevated towards high single digit levels, according to John Keells Stock Brokers (Pvt) Ltd. (JKSB).

The situation has already impacted the financial performance of the industry and is clearly reflective from the subdued top as well as bottom line of the market leader, Bairaha FarmsPLC.

Even though 4Q sales of the poultry and farming industry has historically been strong due to the festive season (Christmas and the New Year), sales remained subdued this time. The headline inflation during this period hovered around 9.8 percent (in January) and 7.5 percent (in March).

Bairaha Farms PLC’s top line narrowed by 6 percent Year-on-Year (YoY) in Q1 in 2013 (Q4FY13) to Rs. 803 million mainly due to a steep decline in prices in both the broiler and layer day old chick markets stemming from industry oversupply coupled with a decline in sales volumes.

Further, given the positive correlation between the disposable income of people and per capita chicken consumption, this situation could further aggravate the already poor per capital chicken consumption which remains well below the level of developed nations at present.

The present chicken consumption level stand at roughly 6.2 kilograms of chicken per person and 57 eggs per person.

However JKSB expects the per capita consumption of chicken and egg in Sri Lanka to increase in tandem with the projected growth in per capita income level which is expected to reach US $ 4,000 by end 2016.

“This should, in turn, translate to steady volume growth for local poultry producers over the medium term,” they opined.

Meanwhile the gross margin contracted largely due to substantial increase in feed prices, VAT on super markets and the maximum price imposed in November 2012.

Some feed prices during the period even doubled where for instance price of soya bean meal shot up by 99 percent while meat and bone meal increased by 50 percent locally during 2012.

“Poultry producers in Sri Lanka are somewhat constrained in terms of their ability to pass on cost increases to consumers, given a statecontrolled price ceiling of Rs. 380 on processed whole chicken with skin (chicken parts are, however, currently not subject to price controls)”, JKSB said.

They also said that although the price of a kilo of chicken was increased by Rs. 30 in October 2012 (from the previous maximum retail price of Rs.350), it has been insufficient to offset the sharp increase in production costs.

Apart from that, the recently imposed VAT charges on supermarkets generating a quarterly turnover in excess of Rs. 500 million also took effect from 4QFY13, causing a further drag on margins (as producers have had to bear some of the impact).

According to the Central Bank annual report, chicken production grew by 5 percent to 122,490 metric tons while egg production showed a significant increase by 23 percent to 1,457 million eggs in 2012.

For the financial year ended March 31,2013 Bairaha Farms PLC recorded a turnover of Rs. 2,883 million, up 3 percent and posted a net profit of Rs.159 million down 63 percent (from Rs.433 million).
http://www.dailymirror.lk/business/economy/31244-inflation-eats-into-sri-lankan-chicken-sales-.html

13Inflation in Sri Lanka Empty Re: Inflation in Sri Lanka Fri Jun 21, 2013 11:56 am

Burpy


Senior Equity Analytic
Senior Equity Analytic
one reason is fishing is growing at a faster rate than paultry for the last few years. People eat more fish now.

14Inflation in Sri Lanka Empty Re: Inflation in Sri Lanka Fri Jun 21, 2013 11:58 am

traderathome

traderathome
Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
hamadama fish curry cha lokka...
chicken uth oney
Very Happy

15Inflation in Sri Lanka Empty Re: Inflation in Sri Lanka Fri Jun 21, 2013 12:32 pm

Jake Sully

Jake Sully
Manager - Equity Analytics
Manager - Equity Analytics
You cant beat the taste of chicken kuruma.....

16Inflation in Sri Lanka Empty Re: Inflation in Sri Lanka Fri Jun 21, 2013 12:55 pm

Backstage

Backstage
Moderator
Moderator
@traderathome wrote:hamadama fish curry cha lokka...
chicken uth oney
Very Happy


And wash it down with a Pepsi  Very Happy

17Inflation in Sri Lanka Empty Re: Inflation in Sri Lanka Fri Jun 21, 2013 12:57 pm

traderathome

traderathome
Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
Today being Friday..I will have chicken buriyani.

18Inflation in Sri Lanka Empty Re: Inflation in Sri Lanka Fri Jun 21, 2013 3:01 pm

VISA


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
what about halal fiasco

19Inflation in Sri Lanka Empty Re: Inflation in Sri Lanka Fri Jun 21, 2013 3:51 pm

traderathome

traderathome
Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
hayyo ayeth patan gattada mey sellama....

okkoma eye wash Very Happy

chicken = haram, matpan b driving = halal

TAH

20Inflation in Sri Lanka Empty Re: Inflation in Sri Lanka Fri Jun 21, 2013 3:58 pm

Jiggysaurus

Jiggysaurus
Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
@traderathome wrote:

matpan b driving = halal

TAH

Better than a 50 year old marrying (or should we use another word) a 9 year old child.

Don't make fun of other cults TAH, because your cult is the funniest of all.

Chill out and try some Pork buriyani, beats chicken and camels everytime.

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