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Double-digit inflation to accelerate further – ICRA Lanka Research

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key commodity prices globally reach multi-year highs fueling inflation

Globally, key commodity prices have reached multi-year highs fueling inflation. US inflation figures reached a new 40 year high of 7.5% for the month of February.

Gold prices gained 5.5% during the month and reached a nine-month high of USD 1,900 per ounce as Ukraine tensions heightened causing investors to flock to gold. Global oil prices rose sharply during the month of February and reached a seven-year high.

Base metal prices spiked as geopolitical tensions caused Nickel prices to reach an 11 year high. Aluminum prices also spiked as global sanctions could potentially cut supplies from Russia who is a major supplier.

Sri Lanka is no exception; the double-digit inflation will accelerate further in the near-term continuing to inflict economic pain on masses for a foreseeable future, says ICRA Lanka Research in their monthly economic update.

Sri Lanka’s trade deficit widened markedly to over USD 1 billion in December as merchandise imports shot up to around USD 2.2 billion. Increase in the fuel bill was the main contributor to increased import costs. Receipts from tourism increased exponentially and generated around USD 314.5 million in February. Worker remittances declined by over 60% to USD 259 Million in January compared to the year before. Treasury instruments held by foreigners remained unchanged for February.

As predicted by many experts, including ICRA Lanka, the Ukraine crisis has taken the center stage in the global arena and sent shockwaves across markets. In this context, timing couldn’t be worse for a vulnerable economy like Sri Lanka. The CBSL finally opted to change its hard stance on the exchange rate and allowed to depreciate – a move ICRA Lanka opined to be prudential for a long time amid severe shortage of forex. This may help ease pressure to some degree.

The World Health Organization last week confirmed the emergence of “Deltacron” – a hybrid strain that combines both the delta and omicron variants. Still there’s a great deal of debate surrounding how much of a threat it can pose to the global economy. Interest rates are rising, self-reinforcing as inflation expectations run stronger. “Therefore, we can expect tighter credit conditions moving forward. Bleaker economic outlook also discourages any new investments deterring credit growth.”



Friday, March 18, 2022 – 01:00

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