Wed, 5 December 2007 0:00:40 LBO >> Economy New Index 04 December 2007 19:20:34
Sri Lanka new price index shows 19.3-pct inflation
Dec 04, 2007 (LBO) – A new index to measure inflation in Sri Lanka's capital Colombo, showed that prices had risen by 19.3 percent in the past 12 months, a tad lower than the 19.6 percent measured by the existing index. The government's statistics office which computes price indices says the Colombo Consumer Price Index (CCPI) was not a "true measure" of inflation because its base is counted on the consumption pattern of a working class household 50 years ago.
All Inclusive
The new index called the CCPI(N) is based on the 2002 consumption patterns of all urban households in Colombo.
Data is collected from 12 urban centres in Pettah, Maradana, Wellawatte, Dematagoda, Grandpass, Borella, Kirulapone, Dehiwala, Kotte, Nugegoda, Kolonnawa and Ratmalana compared to seven centres earlier.
Authorities have been unhappy with the CCPI index as it showed high levels of inflation. The index responds quickly to money printing by the government to bridge the budget deficit.
The criticism that the CCPI index is "wrong" came while a country-wide index, the Sri Lanka Consumer Price Index (SLCPI) showed even higher levels of inflation.
In September inflation measured by the SLCPI was 22.1 percent compared to 17.2 percent for the old Colombo index. The new Colombo index showed 16.10 percent.
Though the trend was the same, the new index showed about a two percent lower inflation than the earlier Colombo index in some months, and sharply lower amounts at other times. But the index changes seemed smoother.
Why Understate?
Economic analysts say using an index that understates inflation would have several advantages to the government.
The main advantage would be that the government would be able to overstate economic growth with an index that understates inflation if it is made the official index for national accounts.
If it is used for monetary policy, the central bank would be able to print more money (have lower interest rates) without its negative effects being discovered by the public.
The government would also be able to underpay savers and provident funds, if the new index is used to index interest rates of inflation-linked bonds.
The government (and firms) would also be able to underpay workers, if the index is used to index wages. However indices using all households are not used to index wages of workers.
An index based on the consumption patterns of blue collar workers is needed to index wages. Such people spend a higher proportion of their income on items such as food.
Locally produced foods such as vegetables, meat and fish which monetary economists call 'non tradables' respond quickly to money printing because they cannot be readily imported when domestic demand pressure rises.
As a result blue collar workers need cost of living allowances quickly.
Even in the so-called capitalist countries such as the United States workers wages' are indexed to CPI-W which is based on the spending patterns of the bottom 32 percent of the urban citizens.
Sri Lanka's old CCPI index had a high proportion of food in it.
Techniques of understating inflation
In addition to using relatively blunt methods such as reducing the weight of items that go up the fastest, countries with central banking regimes use other sophisticated techniques to understate inflation so that more money could be printed;
= Hedonic regression - Discounting a price increase on the pretext that a qualitative increase has taken place which gives more 'pleasure'. The percentage of discount is usually arbitrary.
= Substitution effect - Substituting a rapidly rising product for a cheaper alternative on the pretext that a consumer would switch to a lower priced substitute.
= Increasing the weights of items that change slowly - Such as using rents in place of changes in actual house prices.
= Core-inflation – A controversial concept where the most important but volatile items are dropped altogether from an index. This allows a central bank to avoid tightening monetary policy. But when items such as food are dropped from core-inflation, the index no longer reflects the real world.
Core Inflation
"The Central Bank of Sri Lanka, in particular, has repeatedly highlighted the need for an accurate measure of inflation, which is crucial for the conduct of monetary policy," the statistics office said in a statement on the release of the new CCPI(N) index.
The census department has also developed a core-inflation index. Core inflation is not used in well managed countries to actually target inflation, as it is out of touch with reality.
Sri Lanka's core inflation index would drop prices under government price control, which analysts say is not necessarily a negative feature unless new items are brought under control, the statistics office said.
But using core-inflation for monetary policy purposes can result in frequent asset price bubbles as happens in the United States.
Most countries with inflation targeting frameworks use basic consumer prices with minor adjustments for interest rate changes or taxes. This because a legislative inflation target has no meaning unless it can positively impact the daily lives of ordinary people.
Economic analysts say Sri Lanka may be using a relatively unsophisticated method to understate inflation, which seems to centre around reducing non-trable products and increasing the weight of services in the index.
House rents, fees charged for services take time to adjust and can slow the growth of an index, but they do not necessarily understate inflation over the longer term, as most services are also largely 'non-tradable', meaning they cannot be readily imported.
New Zealand, the country that 'invented' inflation targeting, uses a special non-tradables index to base monetary policy decisions. However the target inflation is the CPI that affects ordinary people with an adjustment for value added tax.
All Inclusive
The new index called the CCPI(N) is based on the 2002 consumption patterns of all urban households in Colombo.
Data is collected from 12 urban centres in Pettah, Maradana, Wellawatte, Dematagoda, Grandpass, Borella, Kirulapone, Dehiwala, Kotte, Nugegoda, Kolonnawa and Ratmalana compared to seven centres earlier.
Authorities have been unhappy with the CCPI index as it showed high levels of inflation. The index responds quickly to money printing by the government to bridge the budget deficit.
The criticism that the CCPI index is "wrong" came while a country-wide index, the Sri Lanka Consumer Price Index (SLCPI) showed even higher levels of inflation.
In September inflation measured by the SLCPI was 22.1 percent compared to 17.2 percent for the old Colombo index. The new Colombo index showed 16.10 percent.
Though the trend was the same, the new index showed about a two percent lower inflation than the earlier Colombo index in some months, and sharply lower amounts at other times. But the index changes seemed smoother.
Why Understate?
Economic analysts say using an index that understates inflation would have several advantages to the government.
The main advantage would be that the government would be able to overstate economic growth with an index that understates inflation if it is made the official index for national accounts.
If it is used for monetary policy, the central bank would be able to print more money (have lower interest rates) without its negative effects being discovered by the public.
The government would also be able to underpay savers and provident funds, if the new index is used to index interest rates of inflation-linked bonds.
The government (and firms) would also be able to underpay workers, if the index is used to index wages. However indices using all households are not used to index wages of workers.
An index based on the consumption patterns of blue collar workers is needed to index wages. Such people spend a higher proportion of their income on items such as food.
Locally produced foods such as vegetables, meat and fish which monetary economists call 'non tradables' respond quickly to money printing because they cannot be readily imported when domestic demand pressure rises.
As a result blue collar workers need cost of living allowances quickly.
Even in the so-called capitalist countries such as the United States workers wages' are indexed to CPI-W which is based on the spending patterns of the bottom 32 percent of the urban citizens.
Sri Lanka's old CCPI index had a high proportion of food in it.
Techniques of understating inflation
In addition to using relatively blunt methods such as reducing the weight of items that go up the fastest, countries with central banking regimes use other sophisticated techniques to understate inflation so that more money could be printed;
= Hedonic regression - Discounting a price increase on the pretext that a qualitative increase has taken place which gives more 'pleasure'. The percentage of discount is usually arbitrary.
= Substitution effect - Substituting a rapidly rising product for a cheaper alternative on the pretext that a consumer would switch to a lower priced substitute.
= Increasing the weights of items that change slowly - Such as using rents in place of changes in actual house prices.
= Core-inflation – A controversial concept where the most important but volatile items are dropped altogether from an index. This allows a central bank to avoid tightening monetary policy. But when items such as food are dropped from core-inflation, the index no longer reflects the real world.
Core Inflation
"The Central Bank of Sri Lanka, in particular, has repeatedly highlighted the need for an accurate measure of inflation, which is crucial for the conduct of monetary policy," the statistics office said in a statement on the release of the new CCPI(N) index.
The census department has also developed a core-inflation index. Core inflation is not used in well managed countries to actually target inflation, as it is out of touch with reality.
Sri Lanka's core inflation index would drop prices under government price control, which analysts say is not necessarily a negative feature unless new items are brought under control, the statistics office said.
But using core-inflation for monetary policy purposes can result in frequent asset price bubbles as happens in the United States.
Most countries with inflation targeting frameworks use basic consumer prices with minor adjustments for interest rate changes or taxes. This because a legislative inflation target has no meaning unless it can positively impact the daily lives of ordinary people.
Economic analysts say Sri Lanka may be using a relatively unsophisticated method to understate inflation, which seems to centre around reducing non-trable products and increasing the weight of services in the index.
House rents, fees charged for services take time to adjust and can slow the growth of an index, but they do not necessarily understate inflation over the longer term, as most services are also largely 'non-tradable', meaning they cannot be readily imported.
New Zealand, the country that 'invented' inflation targeting, uses a special non-tradables index to base monetary policy decisions. However the target inflation is the CPI that affects ordinary people with an adjustment for value added tax.
SRI LANKA Policewomen Urged To Use Maternal Instincts In Dealing With Child Labor, Trafficking
CHILAW, Sri Lanka (UCAN) -- Children packing fish with ice or laying out the catch to dry are common sights along the coast of Chilaw diocese. Parents in this Catholic-majority area see child labor as a way to cope with poverty, even if it means a bleak future for the children, who typically have to work long hours under bad conditions. Sri Lanka's child-labor and related child-trafficking problems were the focus of a Nov. 7 workshop in Chilaw town, a little more than 100 kilometers north of Colombo, for newly recruited female police officers. The diocesan office of the Social and Economic Development Centre (SEDEC), the Church's social service organization, also known as Caritas Sri Lanka, organized the workshop, which appealed to policewomen's maternal instincts in addressing these problems. Neluka Perera, the program organizer, told participants most of the children come from poor fishing families. She called on the policewomen to stop child labor using "motherly compassion," strict law enforcement and "courage." The local child-labor situation is acute. According to Ruwan Manjula, a program officer with the SEDEC women's development unit, children as young as 10 can be seen in the wadiya, fish packaging centers, despite the legal minimum working age being 18. Mudalali, or boat owners, put children to work "under the pretense that it is helping poor families," she said. "The reality is that children are abused for minimum income and are virtual slaves," she reported. The issue is a tough one to deal with. One newspaper recently claimed this country of 20 million people has a "million child labor slaves." The workshop encouraged the policewomen to be more sympathetic in dealing with child laborers or children and women arrested on prostitution charges. As Perera made clear, children in fishing families live in poverty, often in troubled families with alcoholic fathers. Many families cannot afford education. In this diocese, children are "easy fodder" for human traffickers and sexual abuse at the hands of foreigners, she said. The western coast of the country lures foreign men who pay for sex with boys. British charity Christian Aid says information it has gathered indicates that up to 10,000 children between the ages of 6 and 14 are forced to work as prostitutes in brothels that cater mostly to foreigners. Gnanawathie, a deputy officer with the police Women and Children Bureau, told the workshop, "Although we arrest the people abusing children, the next moment we receive a call from a politician to release the culprit." The workshop organizers suggested that the policewomen contact priests or rights groups if they faced problems with influential people, such as politicians or businessmen, who block child-labor or child-trafficking cases because they make money off the children. The officers also were encouraged to help parents approach NGOs for help if they have trouble supporting their children. As Manjula said, cracking down on agents involved in child labor is difficult. "Here not only mudalali but sometimes our relative or friend could be the agent," she said. The policewomen talked about their own experiences. Kumuduni Perera, a police constable, said one mother complained that her child was trafficked by a mudalali to a wadiya for forced labor. "There was another incident in which parents gave their young child to a foreigner" for sexual purposes, she said. "Now this young child, not much more than 5 years old, is with the foreigner." One participant thought women police officers would be more compassionate than men in dealing with children and women victims, while their motherly instincts would provide the courage to act against culprits. SEDEC official Asoka Kumar said it was not only a state duty, but also a "religious duty" to deal with this problem. He said children are also suffering from the worsening economy and civil war. Thousands of child soldiers are reportedly fighting or working with the Liberation Tigers of Tamil Eelam, which launched an armed struggle for a separate state for the Tamil minority in Sinhalese-majority Sri Lanka since 1983. The Church worker expressed his conviction the Church could offer leadership in tackling the "horror" of child slavery. END
SRI LANKAPost-tsunami situation in Sri Lanka “shameful”
Melani Manel PereraThe World Forum of Fisher People denounces after having visited fishing villages hit by the killer wave. Three years on from the tragedy, survivors still live in tents and barely make ends meet. An appeal to the government to commit itself to rebuilding homes and the local economy.
Colombo (AsiaNews) – Almost three years on from the tsunami, fishermen and their families still live in makeshift tents in Sri Lanka as rebuilding and economic recovery is delayed. That is the warning launched by the fourth assembly of the World Forum of Fisher People (WFFP) held between November 29 and December 3rd in Kochchikade, north of Colombo. In 68, delegates from fishing communities throughout the world visited villages hit by the tsunami and expressed their “concern” for the living conditions of survivors.
The newly elected Coordinator of the WFFP, South African Naseegh Jaffar, said “we as the WFFP extend our sadness over the post Tsunami situation which we witnessed in Sri Lanka and the sad situation of the Tsunami victims, specially the victims of fisher sector are still suffering in the camps”. In a press briefing yesterday, Jaffar further added “we regret because these victims have lost their dignity, lost their basic human rights. Not only their property. We believe that the Sri Lankan government has a big responsibility to rehabilitate them”.
Among delegates who visited the camps, Joyce Oruko of Kenya and Marie Ademar of Europe told AsiaNews “the whole world helped Sri Lanka when the Tsunami hit but it is very sad to see the innocent fisher victims are still in camps and struggling with their day to day lives. It is very hard to believe that there are still Tsunami camps”.
Born in 1997 in New Delhi, the WFFP unites small fishing communities and those involved in the fishing industry in coastal zones and on islands in 25 countries throughout the world. The WFFP aims to make the voice of this category of workers heard and bring their demands to the attention of governments and international organisations
Colombo (AsiaNews) – Almost three years on from the tsunami, fishermen and their families still live in makeshift tents in Sri Lanka as rebuilding and economic recovery is delayed. That is the warning launched by the fourth assembly of the World Forum of Fisher People (WFFP) held between November 29 and December 3rd in Kochchikade, north of Colombo. In 68, delegates from fishing communities throughout the world visited villages hit by the tsunami and expressed their “concern” for the living conditions of survivors.
The newly elected Coordinator of the WFFP, South African Naseegh Jaffar, said “we as the WFFP extend our sadness over the post Tsunami situation which we witnessed in Sri Lanka and the sad situation of the Tsunami victims, specially the victims of fisher sector are still suffering in the camps”. In a press briefing yesterday, Jaffar further added “we regret because these victims have lost their dignity, lost their basic human rights. Not only their property. We believe that the Sri Lankan government has a big responsibility to rehabilitate them”.
Among delegates who visited the camps, Joyce Oruko of Kenya and Marie Ademar of Europe told AsiaNews “the whole world helped Sri Lanka when the Tsunami hit but it is very sad to see the innocent fisher victims are still in camps and struggling with their day to day lives. It is very hard to believe that there are still Tsunami camps”.
Born in 1997 in New Delhi, the WFFP unites small fishing communities and those involved in the fishing industry in coastal zones and on islands in 25 countries throughout the world. The WFFP aims to make the voice of this category of workers heard and bring their demands to the attention of governments and international organisations
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