Sri Lanka's annual inflation rate, measured on a 12-month moving average, rose slightly to 17.3 percent in August from 17.2 percent in July because of higher fuel prices, the government said on Friday. Consumer prices rose 17.3 percent in August from a year earlier, lower than an annual rise of 17.6 percent in July, the Census and Statistics Department said.
"The reason for increase in the annual average was the increase in kerosene oil price, which rose by 2 rupees during last month," said D.C.A. Gunawardena, director of the department. Analysts say high inflation - it hit 17.4 percent on a 12-month moving average basis in May, its highest level since 1994 - gives the central bank little room to manoeuvre on interest rates, which are at their highest since 2002.
"We expect the annual average inflation to increase to 17.5 percent in September as prices of commodities in the market basket will go up due to seasonality," said Geeth Balasuriya, assistant manager, research at the HNB stockbrokers.
Adding to the inflation risks, the Sri Lankan rupee is trading near life lows after depreciating more than 5 percent this year. Sri Lanka runs a hefty trade deficit, largely because it imports all of its oil needs, so a weaker currency adds to price pressures.
Central Bank Governor Ajith Nivard Cabraal has said he expects inflation, on a 12-month average basis, to end the year below 10 percent. Gunawardena said he expected that by December the consumer price index would be about 12 to 13 percent higher than a year earlier.
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