Food in Sri Lanka and cooking gas prices on the rise after controls are removed amid printing money
ECONOMYNEXT – Prices of several Sri Lankan staples, cement and cooking gas have risen sharply after the government aborted its failed price controls, while fuel prices, which is also an expected tax source , increase.
Recognizing that government price controls have created shortages, Sri Lanka abandoned price controls on Friday amid the weakening rupee against the dollar.
The prices of a range of essential foods, including rice, wheat flour, bread, rice packers and powdered milk, have already risen since the government rolled back price controls.
Sri Lanka has an oligopoly of rice mills that have kept domestic rice prices above world prices, aided by import controls imposed by the government after printing money.
Pakistan IRRI-6.5 FOB price broken is only US $ 370 per tonne (about Rs 75 per kilogram with rupee at 203 and rupee 85 with rupee at 230 per dollar).
Rice prices rose 17 to 32 percent depending on the variety to 115 to 165 rupees.
Wheat flour increased by 11.5% to 97 rupees and imports of powdered milk by 26.4% to 480 rupees (400 grams) and 1,195 rupees (1 kg).
The Sri Lankan Bakery Owners Association decided to increase a 450 gram loaf of bread by 5 rupees and the Canteen Owners Association increased the price of a cup of tea by 10 rupees.
The two associations engage in overtly collusive prices which undermine price competition. No action has been taken against the anti-competitive behavior.
State-owned Litro Gas Company increased the price of mostly used 12.5 kg gas cylinders by 84%, or 1,257 rupees, while Litro’s sole competitor, Laugfs, raised the price of gas cylinders from 12.5 kg from 51 in Colombo district to 2,840 rupees in Colombo.
One of the two wheat flour companies that import wheat into Sri Lanka said that although they were allowed to decide the price, they were only asked to increase the price by 10 rupees.
“The government has asked us to raise the price by just 10 rupees, which is enough to avoid losses,” an official at a wheat importer told EconomyNext.
“But the government has assured that if there is a further increase in prices in the world, it will again consider a price revision.”
The price of chicken has also increased, according to market participants.
Global prices for food, base metals and energy rose at the Federal Reserve, pushing inflation to more than 5% or double its target rate.
Among the major central banks, the Fed is known to have triggered the biggest global bubbles in history.
He created the Great Depression after the “roaring 1920s bubble”, oil shocks and Great Inflation in the 1970s after shattering the gold standard and the so-called “food crisis and housing bubble” that burst to create the Great Recession in 2008.
Despite the rise in the prices of butane and propane, the state’s price control authority has maintained prices, creating shortages and forcing private company Laugfs to suffer losses of billions of rupees.
“Despite the increase in costs, there was no opportunity to increase retail prices,” Laugfs president WKH Wegapitiya told EconomyNext.
“The Consumer Authority has not authorized it. The gas companies have suffered enormous losses as a result of this situation.
“Companies were always in crisis of survival because they suffered heavy losses. “
Meanwhile, Siam City Cement has offered to increase the price of cement by 9 percent to Rs 1,098 and imported cement by 21 percent to Rs 1,150.
The chairman of the state-run Ceylon Petroleum Corporation (CPC) also said fuel prices should be increased amid rising global oil prices in order to minimize losses.
The government raised the price of fuel in June to minimize losses for CPC, which is also a tax source for the cash-strapped government.
The hike took place during the lockdown amid protests from the population.
The Sri Lankan rupee also fell, pushing up prices.
Sri Lanka’s official exchange rate is around 203 to the US dollar, but importers have to queue for or without the dollars.
Some send dollars by other means at rates up to 240 per US dollar.
Importers only received dollars from the central bank last week to release around 800 containers stranded in the Colombo port.
State-imposed price controls create shortages and a black market, and Sri Lanka saw an almost 100% rise in the price of sugar and rice during the lockdown, despite government data showing the country had sufficient stocks.
Economists say the removal of price controls was correct but that a comprehensive price stability policy was needed.
“The goal of price control is never achieved. He puts away all of our quality products and the waste will be there on the market. Sirimal Abeyratne, professor of economics, told Economy Next.
He said better policy was needed to ensure price stability.
“This (the removal of price controls) doesn’t tell consumers and producers anything about a policy measure that will help stabilize prices in the future.”
“There is going to be global pressure on aggregate demand globally.
“However, Sri Lanka will come under more pressure due to the ad hoc policy measures of the government.”
The central bank printed large volumes of money after price controls failed at bond auctions and tax cuts undermined state revenues.
The central bank has since lifted bond price controls, but markets continue to malfunction.
The Forex markets are subject to multiple controls.
Sri Lanka has an unanchored monetary policy leading to high inflation and external instability, critics said. (Colombo / 11/10/2021)