T oday, a drastic change can be seen in many sectors when compared to those days during the Aragalaya. The socio-economic crisis triggered due to the Easter- Sunday attack in 2019 and also due to Covid-19 pandemic, many things happened in the country throughout that period until the end of the Aragalaya. Mostly those badly affected the country’s culture had taken place. Paying the last respect to loved ones is an usual practice in our society but due to the Covid-19 pandemic this practice has been changed and very few people attended weddings and funerals in fear of the epidemic. But now it has been changed as people participate in those functions freely.
That situation has been changed gradually with no more queues and restrictions for getting essential goods for people’s day-to-day lives. Except for vehicle imports, shortages in some of the goods are no more.
I think many people remember how prices of goods skyrocketed during those days and Sri Lanka was among the five countries with the highest inflation rate in the world. There was also a situation where the dollar value was changing rapidly. Initially, the dollar value was at Rs. 225 but due to the unprecedented economic crisis it depreciated making a rapid increase in the dollar value. This resulted in the dollar exchange in the blackmarket even at a higher rate and it rose upto Rs.470. At the same time, fuel prices and bank loan interest rates also increased causing a huge increase in prices of all commodities.
Rising commodity prices
In economics, the reasons for rising commodity prices and increasing inflation have been explained. The rise in prices is largely due to increased demand. However, apart from that, inflation can also increase due to various other reasons. It seems that economic reasons as well as non-economic reasons have influenced the rise in prices of goods and services in Sri Lanka during those days. The prices of commodities rose dramatically and taking advantage of the situation, the producers as well as the traders created an artificial price hike in all goods.
It is normal for the price of milk powder to rise when the rupee depreciates and the dollar appreciates but there was an unusual hike in milk powder prices. Initially, the price of a 400 gram packet of locally produced Highland milk powder was Rs 290, while the price of a 400 gram packet of imported Anchor milk powder was Rs 370. However, under that scenario the price of a packet of Highland milk powder went up to Rs.1,150 and the price of a packet of Anchor milk powder went up to Rs. 1,050 due to increase in the dollar value. However, it is unclear what caused the price increase of the locally produced Highland milk powder. In this way, the prices of almost all goods in the country were subject to price hikes by two to three-folds. Some traders and manufacturers put the prices of goods up according to their whims and fancies.
When I entered a particular supermarket, I was surprised to see how their staff was relabelling the price tags of the commodities with higher prices. I think most supermarkets did the same. The prices of goods started to rise mainly due to low production of goods in the country, limitations in foreign supply chains, shortage of foreign exchange and depreciation of the rupee. The price hike reached its maximum level in June and July in 2022. When considering the prices of goods during the post-independence period, there was not a significant decrease in prices but showed an increase in them.
The reason for that trend was that there was a continuous increase in inflation. On the other hand, there was a continuous increase in prices of goods mainly due to over dependency of foreign goods and the continuous depreciation of the rupee. When considering the situation in other countries, it seems that the price of goods had not gone down, but had gone up.
The increase in commodity prices after the Covid-19 pandemic in Sri Lanka was an unusual situation. The above mentioned special reasons have affected but after easing off those reasons there should be a decrease in the prices of goods. For example, the situation caused by the devaluation of the rupee can be mentioned here. Although the dollar reached Rs. 470, it has now dropped to Rs. 300.
Inflation has come down while the prices of fuel, electricity and bank interest rates have also come down. As a result of those decreases in prices and inflation, the prices of the country’s goods should decrease to a significant level but such a decrease has not yet been reported. The reason for this is that many producers and traders in the country try to gain high profits by retaining prices of goods at a higher level.
In this way, the people are not getting the benefit of price decrease as the importers and local producers do not reduce the prices of goods and services according to the changes in the cost of production. But the manufacturers, importers and traders have not realised that they are compelled to reduce the prices willingly or unwillingly, soon.
Building materials
When prices are high, people don’t buy goods, therefore sellers have to bear the losses. For example, the price of building materials in the country has increased significantly but there has been no change in those prices when the dollar has decreased. As a result, the country’s construction industry has badly affected and a drastic decrease in building material sales. This has caused a huge loss to those who sell building materials. However, there is a price reduction in some of the building materials and a further price reduction of those materials can be expected. When the prices of building material are reduced, there will be a boom in the construction industry.
When there is a price reduction in goods, it will boost the economy due to high the demand. The demand increases when people’s purchasing power is increased. It will increase the demand for goods in all sectors while production of all sectors is increased. This will ultimately result in a sound economic growth.
It is now evident that the government has taken all measures to reduce the prices of goods while strengthening the rupee value. Fuel, electricity and bank loan interest have now been reduced resulting in the reduction in production cost. But, there is no significant price reduction in goods and services yet.
Even though there is a considerable price increase of a loaf of bread, it seems that today there is a competition between bakery owners. While some bakery owners are trying to maintain the current prices of a loaf of bread, some owners seem ready to reduce the price of bread. The end result may be that the price of bread will gradually decrease. This is the case with all goods and services. When the cost of production is reduced and the prices are not reduced compared to the production cost, a price competition will be created and that will result in the price reduction of goods.
Due to proper economic management by President Ranil Wickremesinghe amidst various challenges and difficulties, an environment has now been created in the country to reduce the prices of goods. If the manufacturing sector understands this scenario and reduces prices, an accelerated economic growth of the country is imminent.
