COLOMBO- With an out of work husband, housewife Sujeewa Nelum Perera is all too familiar with the struggle of feeding a family of four in Sri Lanka and has been forced to cut down on the number of meals they consume amid record high food prices.
Perera’s husband, an autorickshaw driver, has been unable to earn any wages for two weeks now as dwindling fuel reserves in the country have prompted authorities to restrict fuel supplies to only essential services.
“We need about Rs. 2,000 ($5.50) per day for meals. But with food prices increasing daily we are down to about two meals,” Perera, 38, told Reuters while shopping for groceries in Kelaniya, a suburb about 9 km (5.6 miles) from the commercial capital Colombo.
Sri Lanka’s inflation rate stood at 54.6 percent in June, brought on in part by the worst financial crisis in decades, and economists say policymakers can do little to lower prices in the near future.
The island of 22 million people is wilting under a severe foreign exchange shortage that has left it struggling to pay for essential imports of fuel, fertilizer, food and medicine and has spurred people to take to the streets in protest.
The crisis comes after COVID-19 hammered the tourism-reliant economy and slashed remittances from overseas workers, and has been compounded by the build-up of huge government debt, rising oil prices and a ban on the import of chemical fertilizers last year that devastated agriculture.
Food inflation reached 80.1 percent year on year in June while transport costs surged 128 percent, official data showed.
With soaring food prices, 70 percent of households are now reporting reduced food consumption, UNICEF said in a statement earlier this month.
To consume a healthy diet as recommended by the World Health Organization, a household must earn between Rs. 93,675 to Rs. 148,868, said RehanaThowfeek, an economist specializing in tracking food inflation.
However, Sri Lanka’s average household income is just Rs. 76,414 per month and the poorest 20 percent only earn Rs. 17,572, official data showed.
To make matters worse, most vegetable prices have more than doubled while rice, a vital staple, has increased from Rs. 145 per kilogram a year ago to Rs. 230.
Sri Lanka is in talks with the International Monetary Fund for a possible $3 billion bailout but it could take several months before a program materializes.
Analysts said inflation could peak in July but will continue to hover around 50 percent over the rest of the year.
“We expect an IMF program in the latter part of the year. But even then inflation will only reach 10 percent-15 percent around June 2023,” said Dimantha Mathew, analyst at First Capital Research.
The central bank increased rates by a record 700 basis points in April, to curb inflation and stabilize the currency.
It is expected to raise interest rates again to rein in record-high inflation and move forward bailout talks with the International Monetary Fund as it tries to manoeuvre through its worst financial crisis in decades.
The island of 22 million people is caught in a severe dollar shortage and is struggling to pay for essential imports of medicine, food and, critically, fuel.
The Central Bank of Sri Lanka (CBSL) kept its standing deposit facility rate unchanged at 13.50 percent and standing lending facility rate at 14.50 percent in May after raising both by a record 700 basis points in April.
Ten of a dozen economists and analysts polled by Reuters said they expected a rate increase ranging between 100 and 300 basis points after retail prices rose 54.6 percent while food prices were 80.1 percent higher in June from a year earlier.
“A rate hike is expected to ease currency pressure to some extent but inflation is expected to see a sharp increase once fuel and power price hikes are announced, possibly in the coming weeks,” said Lakshini Fernando, macroeconomist at Colombo-based investment firm Asia Securities.
Inflation could end the year at 60 percent, Prime Minister Ranil Wickremesinghe told parliament on Tuesday as the government prepares to present its debt restructuring framework to the International Monetary Fund (IMF) in August.
With the US Federal Reserve expected to continue raising rates, the CBSL is also expected to increase, to ensure the rate differential does not tilt too much against it.
Interest rate rises, however, would further dampen economic growth in the island nation.
Sri Lanka recorded a contraction of 1.6 percent on year in the first quarter and for the year as a whole is seen contracting by 4-5 percent.
Last week, the IMF said talks with Sri Lankan authorities had been constructive, raising hopes it would soon grant preliminary approval for a desperately needed financial support package.
But time is limited for the country trying to pay for new fuel shipments. This week, it extended a countrywide school closure, asked public employees to work from home, and limited supplies to essential services to stretch out meagre supplies.
“Sri Lanka is mostly dealing with cost-push inflation, especially from high fuel prices, so there is little the central bank can do to tame this,” Mathew said.
In Kelaniya, Perera has been trimming costs by dropping pulses, fresh fish and chicken from the family’s diet. Milk has also become a luxury item, including for her 12-year-old daughter and eight-year-old son.
“It’s just too expensive. Even eggs I only make for the two children now. My husband and I go without. Prices will keep going up and we are told the worst is to come. I don’t know how we will live.” — Reuters
