Sri Lanka’s low and middle income households hit harder by stubborn non-food inflation

by Sanath Nanayakkare

As per the basket of goods and services tracked by the Statistics Department of the Central Bank of Sri Lanka, a downturn in the prices of food has helped inflation to drop over the past few months. But stubborn price increases in the non-food category are still marking an upward trend and it has hit harder on Sri Lanka’s working-class households.In such circumstances and with no growth of nominal wages, the purchasing capacity of the squeezed working-class has eroded.

According to Weekly Economic Indicators of the Central Bank, The food inflation recorded at 42.3 per cent, while the non-food inflation recorded at 54.9 per cent in March 2023. Monthly change of the NCPI recorded at 0.36 per cent in March 2023 mainly due to price increases observed in items of the non-food category, which amounted to 1.30 per cent.

“Consumer confidence in Sri Lanka saw significant improvement last month despite pessimistic sentiment overall, suggesting the agreement with the International Monetary Fund (IMF) had lifted perceptions. However, the current decline in business activity seems to be mainly driven by increases in non-food category and companies suspending salary or wage increases due to financial constraints,” a business analyst told The Island Financial Review on condition of anonymity.

“On the one hand, the government must avoid any additional costs on business as it will jeopardise retailers’ ability to keep prices affordable throughout this cost-of-living crisis. On the other hand, companies mustn’t exploit Inflation to pad their bottom line. More often than not, it looks as if many companies are raising prices more by choice than necessity,” he said.

When asked what the improved Purchasing Managers’ Indices released by the Central Bank for Manufacturing and Services activities In March 2023 and the appreciation of Sri Lanka rupee against the US dollar by 13.1 per cent during the year up to 21st April 2023 would mean for ordinary consumer’s purchasing power, he said,” Those are positive macroeconomic indicators, but they have little impact on working class consumer power. Consumer prices reflect changes in producer prices, taxes, high interest rates etc. When all that combines with a wage freeze for an unforeseeable period of time, it kills the purchasing power of the working-class. Non-food items cannot be classified as non-essential commodities or services. How could one say clothing, footwear, telecom, medicine, healthcare, household items, tuition etc. are non-essential? That doesn’t make sense,” he said.