The Central Bank of Sri Lanka (CBSL) has observed media reports highlighting adjustments to the Value-Added Tax (VAT) as the reason for increased inflation in 2017.

The CBSL wishes to clarify the Governor’s response to a query from the media on rising inflation in 2017 at the press conference held on the Monetary Policy Review No. 6 of 2017 at CBSL Head Office. In his response, the Governor stated that in addition to the adjustments made to the government tax structure, the adverse impact of weather related supply side disruptions, rising international commodity prices and the impact of the base contributed to the acceleration of inflation thus far during 2017. While the aforementioned factors lie beyond the control of the CBSL, it has maintained a tight monetary policy stance since early 2016 thereby containing demand-driven inflationary pressures and the buildup of adverse inflation expectations.

Inflation, as measured by the change in the National Consumer Price Index (NCPI) (2013=100), which is compiled by the Department of Census and Statistics (DCS), increased to 7.9 per cent in August 2017 from 6.3 per cent in July 2017, on year-on-year basis. Both Food and Non-food categories contributed towards the year-on-year inflation in August 2017.

The change in the NCPI measured on an annual average basis increased from 6.2 per cent in July 2017 to 6.5 per cent in August 2017.