ECONOMYNEXT – Sri Lanka’s Consumer Affairs Authority will publish ‘indicative prices’ for key imported essential goods, based on customs import data and domestic costs, Trade Minister Nalin Fernando said.
The indicative prices are published due to public concerns that big margins are made by traders and there were big gaps between import prices and retail prices, he said.
Sri Lanka’s food prices have fallen steeply since the central bank hike rates ending money printing to suppress rates.
Sri Lanka’s central bank started to print money from early 2020, cutting rates, cutting reserve ratios and dumping hundreds of billions of rupees into the banking system, triggering severe forex shortages and downgrades, making it impossible to service foreign debt.
Meanwhile the US money printing also pushed up global commodity prices including wheat, until the Federal Reserve hike rates starting from March 2022, and commodity prices started to ease about 4 to 5 months later.
Meanwhile Minister Fernando said wheat prices which were 85 rupees a kilo in 2019 (when the rupee was around 185 to the US dollar) shot up to 485 rupees in 2022.
The rupee collapsed to around 370 to the US dollar after March 2022 as an attempted float was failed by a surrender rule.
Meanwhile due to forex shortages in the formal banking system, some food imports were settled through informal means at round 400 to the US dollar or higher at time, preventing mass starvation. At the time global freight rates were also high due to Fed money printing.
Wheat prices have now come down from 450 to the US dollar to around 195-200 to the US dollar, Minister Fernando said.
“Whether you take sugar or any other food, prices are down, but they have not come down to 2019 levels.”
“But the rupee is now 300 to the dollar, we expect prices to come down.”
Bank interest rates which was 8 to 10 percent went peaked at around 30 percent, and has since also come down to around 11 to 12 percent, he said.
“All this has benefitted producers and businesses,” Fernando said.
Dhall which was 120 rupee a kilo before the printing bout, and rose to 585 rupees was down down to about 295 rupees.
“The Consumer Affairs Authority has done some calculations based on customs data and costs to get at an indicative retail price range,” Minister Fernando said.
“Based on this estimated price range consumers can demand better prices. We will publish this price every Tuesday.”
The main intention of the trade ministry was to ensure goods without a shortage during the New Year period, he said.
Big onions were still expensive he said, after India and Pakistan banned imports.
“Our main intention was to ensure that there was no shortage of goods,” Fernando said. “Other than big onions where there is a supply problem due to India and Pakistan banning exports, we have cut import taxes to allow rose onions.
“Foreign onions are now available at 450 to 600 a kilo. Chinese onions are available at 300 to 325 rupees a kilo. Local red onions are available to 250 to 275 rupees a kilo.”
If the exchange rate is kept stable or appreciates, food prices will fall further, Minister Fernando said.
Sri Lanka’s central bank is running deflationary policy (mopping up liquidity from dollar purchases instead of its usual practice of printing money to generate multiples of inflation found in ‘rich’ countries), and allowing the rupee to appreciate.
Under IMF programs in the past, the central bank has not allowed the rupee to appreciate even when it was collecting reserves with deflationary policy. (Colombo/Apr09/2023)