Wednesday, January 2, 2008

Sri Lanka set for price increases as war escalates

COLOMBO (AFP) — Sri Lanka is set to raise the prices of basic foods such as potatoes and sugar as well as cooking gas, officials announced Tuesday, fanning fears of galloping inflation in the conflict-wracked island.

Inflation is already running at 17.5 percent in the tropical country, whose economy has been slowing amid an escalating war between government forces and Tamil rebels fighting for an independent homeland.

Liquefied petroleum gas used for cooking was slated to rise by nearly 12 percent Wednesday, the Royal Dutch Shell company said, blaming the increase on high global prices.

Import duties on sugar, potatoes, canned fish and lentils were to be raised by 15 to 30 percent Wednesday, the trade ministry said, attributing the increase to a jump in global commodity prices and removal of subsidies.

"Food accounts for about 60 percent of our inflation index. The rise in food and energy prices will push inflation further this year," said Vajira Premawardhana, research head at stockbrokers Lanka Orix Securities.

Consumer prices hit a decade high of 20.5 percent a year ago.

Sri Lanka's economy grew by 7.0 percent in the three months to September compared with 7.7 percent in the same period a year earlier.

"The government has little choice but to reduce inflation, otherwise it will erase gains on economic growth. The ongoing war is not making things easier for the economy either," said Premawardhana.

Sri Lanka raised its 2008 defence budget by 20 percent to a record 1.48 billion dollars and Colombo has vowed to militarily crush the Tamil Tigers, who are fighting for a separate Tamil homeland.