By Mandana Ismail Abeywickrema
The country heralded a rather bleak festive
season with the decline in the purchasing
power of the people, which is showing
signs of deteriorating further in the new
The rising cost of living has taken its toll
on the people since 2004, and they are now
feeling the pinch of the drastic decline
in their purchasing power.
The masses have been facing several shocks in
the form of price hikes in essential food
items at regular intervals over the past
few years, with this year being the one
that has recorded the highest number of
price hikes in consumer goods. However,
the unkindest cut was the Christmas Day
surprise - a Rs.9 hike in the price of a
kilo of wheat flour.
Doubled within a year
Within this year alone, the price of wheat
flour has seen an increase of over 110%.
The Rs. 9 increase in wheat flour caused
an immediate Rs. 3 increase in the price
of bread as well.
A kilo of wheat flour is now Rs. 74 and a
loaf of bread is Rs. 38 at the minimum.
A litre of petrol has increased from Rs. 51
in 2004 to Rs. 117 in 2007 (129.41%
increase), a litre of diesel has increased
from Rs. 32 to Rs. 75 (134.38% increase)
and a litre of kerosene has seen the
highest increase - from Rs. 25 to Rs. 68
(172% increase). The price of a domestic
gas cylinder too has seen a 97.27%
increase since 2004.
Milk powder prices have seen a drastic
increase as well. A 400 gram pack of milk
powder now costs Rs. 275 forcing many poor
families to purchase milk powder in
The market basket value has been on a steady
increase as a result.
According to the Census and Statistics
Department, there has been an increase of
Rs. 512.08 in the expenditure value of the
Market Basket in November when compared to
Campaign against CoL
The cost of living has been the make or break
factor of governments right throughout.
The CoL played a key role in the great hartal
of 1953. The opposition then led by the
late Sirima Bandaranaike carried out a
campaign against the rising cost of
living, which led to her return to power.
However, ironically, it is these very same
issues - the rising cost of living and the
lack of essential goods that subsequently
led to her defeat in 1977.
Then, in 1994, the government headed by
President Chandrika Kumaratunga came to
power on the promise of providing bread at
Rs. 3.50 (a loaf of bread weighed 450
grams) at a time when a loaf was sold at
Rs. 5.50. A US dollar was then Rs. 49.
No viable solution
There are two factors that play a key role in
the cost of living - the prices of goods
and services, and the income of the
So far there has been no proper solution
offered on both these fronts. The
government has not been able to control
the prices of goods and services and
neither has it been able to increase the
income of the people, in a manner it would
help increase the people's purchasing
While 16% of the country's labour force is
employed by the public sector, 63% is
employed in the private sector.
However, while the salaries of the public
sector employees have seen a somewhat
positive increase, the private sector
employees' wage has seen a negative
According to the Labour Department, the real
percentage change in private sector
salaries has seen a negative growth; -
4.8% in 2004 to - 9.9% in 2006. The real
percentage change in the public sector
worker's salary has been quite the
opposite as it has recorded an increase
from 14.0% in 2004 to 15.1% in 2006.
Analysts have pointed out that the statistics
clearly show that the majority of the
labour force in the country were drawing a
salary that obviously is not commensurate
with the expenditure, given the rising
cost of living.
Failed so far
The government for its part has so far failed
to introduce any solid methods to combat
the rising cost of living. The only
solution so far has been the decision
arrived at by the government in August to
freeze prices of petroleum products for a
period of three months. That lapses this
The government has artificially prevented any
price hikes in fuel for the time being,
but its economic viability is questionable
given the fact that the consumer would
ultimately have to pay for it at some
However with rising global prices, Petroleum
and Petroleum Resources Minister, A.H.M.
Fowzie says that if the government
continues with its decision not to
increase fuel prices, then the Treasury
would have to look at an alternative to
minimise the losses incurred by the Ceylon
Petroleum Corporation (CPC).
He also said that President Mahinda
Rajapakse's proposal to waive off taxes
imposed on fuel to stabilise prices too
would not make much of a difference when
it comes to maintaining prices. (See box)
Instead of finding proper methods to address
the present crises the government has
found solace in blaming everything on the
rising global prices.
Consumer Affairs Minister Bandula Gunewardena
earlier told The Sunday Leader that the
rising global prices have resulted in the
increase of prices of certain commodities,
which has pushed inflation further.
"The global prices have affected every
country. The whole world is now facing a
food crisis and during the next few months
it would get visibly worse. Inflation
would see an increase then," he said.
However, economists have argued that although
global oil prices have an impact on
inflation, it was not as much as the
government has made it out to be.
They point out that global prices did not
have an impact on the level of inflation
as much as the government has highlighted.
Region better managed
Other countries in the region, which are also
affected by the high global prices, have
managed to maintain single digit levels of
Sri Lanka's closest neighbour, India, has
recorded a 3% level of inflation along
with many other countries in the Asian
Sri Lanka has one of the highest levels of
inflation in the region.
The Colombo Consumer Price Index (CCPI)
recorded a 4.4% increase between the
months of October and November.
Meanwhile, the countrywide consumer price
index, the Sri Lanka Consumer Price Index
(SLCPI) was recorded at 24.1% in October
this year, the highest recorded by the
index since 2005. The SLCPI's previous
high was 18% recorded in January 2005,
soon after the government printed Rs. 65
billion to fund its fuel and fertiliser
subsidies in 2004.
Minister Gunewardena has publicly admitted
that the government, since 2005, has been
involved in printing money to fund its
expenses. He also said that the government
would not have any option but to print
money if it did not have the necessary
funds to meet its expenses.
Amidst the present economic conditions, the
statement made by Gunewardena is a warning
of the compounded economic issues that the
country would be likely to face in the new
year. Sri Lankans are far from seeing the
end of the shock treatment.
The cost of living has been on a steady
increase since the ascension to power by
the UPFA government in 2004. The many
excuses given by the government have not
helped ease the burdens of the masses. The
following statistics show a steady
increase in the cost of living since 2004.
over four years
For almost four years now, the level of
inflation has been on the increase. Since
2004, inflation has been on an increase
and the deteriorating economic conditions
caused by loose fiscal policies have
helped push further the level of
Salary with 50% self-imposed
2 office telephones
Daily allowance for parli.
(eight sessions per month)
Deductions - EPF
Trade unions fees
enterprises owe CPC Rs. 25 billion
Petroleum and Petroleum Resources Minister,
A.H.M. Fowzie says that the Treasury
would have to look at alternative
methods to minimise losses incurred
by the Ceylon Petroleum Corporation
(CPC) due to the non-revision of
However, he said that the government was yet
to decide on increasing fuel prices
and added that prices may not be
increased for another few months.
The CPC currently incurs a loss of
Rs. 18 per litre of diesel and Rs.
22 on a litre of kerosene.
According to Fowzie, due to hedging, increase
in the refinery capacity and by
cutting down on wastage, the CPC has
managed to make some money which has
set been set off against part of the
losses made in the last three
Various state enterprises owe CPC Rs.25
"I will make a request from the Treasury
to look into the present situation.
CPC needs its outstanding dues from
other state enterprises settled if
it is to continue without any price
revisions," Fowzie said. When
asked if the CPC could maintain
local fuel prices by following the
proposals of reducing VAT and
waiving off duty levies, as
presented by President Rajapakse in
his 2008 budget, Fowzie said that it
would not be sufficient.
According to Fowzie, the reduction in VAT and
the waiving off of the Rs. 20 excise
duty would not make much of a
difference as the loss incurred by
the CPC for a litre of diesel and
kerosene is higher than the amount
proposed to be reduced.
"The government will have to come up
with an alternative plan," he
issues bills on tap
The country's 3-month Treasury Bill yield
last week increased by 116 basis
points to 21.30 per cent amid a cash
crunch faced by the government with
the Central Bank refraining from
printing money to intervene in the
It was reported that during the past four
weeks, the 3-month yields have shot
up 523 basis points, 6-months 220
basis points and 12-month yields 189
It was also said that the government's debt
office, which is a unit of the
Central Bank, raised 6,421 million
in 3-month money and 512 million in
6-month money and retired 7,000
million in maturing bids.
The 6-month yield remained the same as last
week at 19.99 per cent, while all
bids for 12-month bills were
rejected. Last week the average
12-month yield was 19.96 per cent.
The cut off - the highest rate at which bills
are accepted is estimated to be
22.00 per cent for 3-month bills and
20.20 per cent for 6-month bills.
The Central Bank has tended to issue bills on
tap in between auctions during the
past few weeks to raise money for
The soaring cost of living has however
burdened only a certain section of
society, namely the common man. The
government ministers earlier agreed
to a 50% salary cut in order to
'share' the burdens of the rising
cost of living. However, it is
interesting to note that the 50%
slash was only applicable to the
basic salary and not the allowances.
Ministers, even after the 50% slash in their
salaries earn a hefty Rs. 240,142
monthly as opposed to a plantation
worker who earns a measly Rs.
Below is the breakdown that highlights the
economic disparity between the
ministers and the plantation