SOUNDNESS OF MONEY: CREDIBILITY OF COLOMBO CONSUMER PRICE INDEX [CCPI(N)] AS A MEASURE OF INFLATION IN SRI LANKA

Abstract

In order to remedy the lacunae in the price index of Sri Lanka that the latter half of the 20th century, the concerned authorities have, since 2002, been using a new methods procurement of data and analyses. However, due to rigid assumptions and “rules of thumb” upon which these index calculation models rest, the figures that denote the price index do not seem to be considered as sound and proper. Then in consequence, the rate of inflation which rests on the price index figures do not denote the true and fair picture of the status of the economy. The undertaken study is based on the scrutiny of the data for the period of 1952 to 2010 obtained from the Central Bank of Sri Lanka. Semi-structured interviews of the concern individuals and authorities were conducted for the purpose of gathering qualitative data. E-views and MSExcel software were utilized for the purpose of analyses. With these statistical test models, this paper seeks to estimate some of those errors made in the calculations of the consumer price index. The results of the study show that there are glaring deficiencies with the present CCPI(N) system. These comprise, inter alia, the non-inclusion of the depreciation/ appreciation of the currency, rise/decline in import prices, and the shift of the cost of living, all of which have direct coupling with inflation. Then they include also the lack of proper representation of the weights associated with consumption patterns of the poor, lack of regional representation, and non-inclusion of some social undesirables including the consumption of alcohol. These lacunae render significant impact on true measure of per capita income growth, redistributive justice of incomes and the figures denoting un- or quasi-employment.

Key Words: Laspeyres Price Indexes, Inflation, CCPI(N), Consumer Price Index, Monitory Policy

For full paper: fmscresearch@sjp.ac.lk