Decline in labour force in 2020 first half

The general price level as measured in terms of the National Consumer Price Index

(NCPI, 2013=100) increased in January 2020, moved on a declining trend until April and increased thereafter in line with the prices of items in the Food category. Within the Food category, prices of Volatile Food items exhibited mixed movements, while prices of other food items exhibited an overall increasing trend during the period from January to September 2020. With a notable increase at the beginning of the year, prices of items in the Non-food category remained mostly unchanged during the period from April to June 2020, mainly due to the lower demand for non-essential goods and services and non-adjustment of administered prices with the spread of the COVID-19 pandemic in the country. NCPI based year-on-year headline inflation remained above mid-single digit level during the period from January to September 2020. Meanwhile, headline inflation, as measured by the year-on-year change in the Colombo Consumer Price Index (CCPI, 2013=100), remained broadly within the targeted range of 4-6 per cent during the period from January to September 2020.

The year-on-year core inflation, based on both NCPI and CCPI, remained at stable levels, yet notably lower than that of the previous year. Meanwhile, inflation expectations of the corporate sector remained well anchored during the period from January to September 2020. The negative impacts of the COVID-19 pandemic amidst the persistent structural issues led the labour market indicators to deteriorate during the first half of 2020. As such, the Labour Force Participation Rate (LFPR) and employed population declined in the first half of 2020 compared to the corresponding period of 2019. In line with the decline in the employed population, the unemployment rate increased notably to 5.6 per cent during the first half of 2020 compared to the same period of the previous year. Following the same trend, unemployment rates among the females, youth, and educationally qualified persons continued to remain at high levels during the first half of 2020. Meanwhile, departures for foreign employment declined sharply in the first half of 2020 compared to the corresponding period of 2019 due to the spread of the COVID-19 pandemic.

CENTRAL BANK OF SRI LANKA RECENT ECONOMIC DEVELOPMENTS: HIGHLIGHTS OF 2020 AND PROSPECTS FOR 2021 rice,

vegetables, red onion, large fish, meat and green chilli. The increase observed in the prices of Volatile Food items in June 2020 was mainly due to price increases in items such as rice, vegetables, fresh fish and chicken. However, this increasing trend reversed in July 2020, attributed by price decreases in rice, coconut, vegetables and onions. Nevertheless, the prices of items in the Volatile Food category increased afterwards until September 2020, owing to the price increases observed in vegetables, coconut, big onion and fruits. When observing the price movement of selected Volatile Food items, prices of rice varieties underwent several revisions during the period from January to September 2020 to protect consumers from escalating prices during the lockdown period.

Maximum Retail Prices (MRPs) of Rs. 90 each for Samba and Nadu rice and Rs. 85 on Kekulu rice, which were imposed with effect from 10 April 2020, were revised upwards to Rs. 98, Rs. 96 and Rs. 93 on Samba, Nadu and Kekulu rice, respectively, with effect from 28 May 2020.

However, towards the latter part of the period from January to September 2020, a supply shortage in Samba rice was bserved amid the receival of the Yala harvest to the market. In contrast to 2019, prices of coconut recorded increases during the period from January to September 2020 except for May and July, thereupon remaining above the prices prevailed in the corresponding period of 2019. As a result, MRPs of Rs. 60, Rs. 65 and Rs. 70 were imposed on coconut, of which the circumference is below 12 inches, etween 12-13 inches and above 13 inches, respectively, with effect from 25 September 2020. Big onion prices in February, March and April in 2020 remained well above the prices prevailed in the corresponding months since 2014, compelling the government to impose MRPs of Rs. 190 and Rs.150, with effect from 23 February 2020 and 18 March 2020, respectively, to protect consumers from higher prices. Subsequently, big onion prices followed a declining trend during April to July 2020, especially due to lower prices in the international market. Afterwards, big onion prices increased mainly due to decline observed in the domestic production owing to crop damages and export ban

Developments in 2020 Prices

Movements of the General Price Level yy The general price level, which ncreased in January 2020, moved on a declining trend until April and increased thereafter. Both Consumer Price Indices (CPIs), namely, the National Consumer Price Index (NCPI, 2013=100) and the Colombo Consumer Price Index (CCPI, 2013=100),1 which measure the general price level, moved in line with the prices of items in the Food category during the period from January to September 2020. The behaviour of the prices of items in the Food category, which was largely affected by policy decisions taken by the government to curtail the COVID-19 pandemic, has exhibited mixed movements so far during 2020. Even though the prices of items in the Non-food category showed an increasing momentum during January to March, prices of the same exhibited broadly a stable behaviour between April and June 2020, signifying the low demand for non-essential goods and services during the lockdown period. However, prices of items in the Non-food category increased again from July 2020.

= Considering the period from January to September 2020, the prices of items in the Volatile Food2 category increased at the beginning of the year, moved on a declining trend till May 2020, and followed an overall increasing trend thereafter. The increase observed in the prices of Volatile Food items in January 2020 was mainly driven by the price increases of vegetables, coconut and red onion.

However, reversing the continuous increasing trend observed since April 2019, prices of items in the Volatile Food category decreased in February 2020 and continued its declining trend until May 2020 owing to price declines in The Department of Census and Statistics (DCS), compiles official consumer price indices, namely, the National Consumer Price Index (NCPI, 2013=100) and the Colombo Consumer Price Index (CCPI, 2013=100) on a monthly basis. The NCPI demonstrates the price movements of elected consumer items at the nationallevel, while the CCPI reflects the same among urban households in the Colombo district.

2 Volatile Food includes rice, meat, fresh fish and seafood, coconut, fresh fruits, vegetables, potatoes, onions and selected condiments.

PRICES, WAGES, EMPLOYMENT AND PRODUCTIVITY

CENTRAL BANK OF SRI LANKA RECENT ECONOMIC DEVELOPMENTS: HIGHLIGHTS OF 2020 AND PROSPECTS FOR 2021 imposed by India with effect from 15 September 2020. Meanwhile, the Special ommodity Levy (SCL) on imported big onion was creased to Rs. 15 and Rs. 50 per 1 kg with effect from 01 May 2020 and 01 August 2020, respectively.

However, the government revised the SCL downwards on imported big onion to 25 cents with effect from 14 October 2020, in view of curtailing difficulties rising with the re-emergence of the risk in the spread of the COVID-19 pandemic in the country. Furthermore, red onion prices, which recorded its highest in the recent past at the beginning of the year, decreased comparatively towards the end of the period from January to September 2020, though the SCL increased to Rs. 50 per 1 kg with effect from 22 May 2020. During the period from January to September 2020, prices of potatoes, which mostly stayed above the price levels observed in the corresponding months of the recent years also experienced an increase in SCL on imported potatoes to Rs. 50 and Rs. 55 per 1 kg with effect from 22 May 2020 and 15 August 2020, respectively.

= Within the Food category, prices of items excluding Volatile Food moved on an overallincreasing trend during the period from January to September 2020, exhibiting a marginal decline only in March 2020. Local milk powder price for a 400g packet was increased from Rs. 345 to Rs. 380 with effect from 28 April 2020 in order to match the imported milk powder price. However, the price of imported milk powder, which underwent several price revisions in 2019 remained unchanged during the period from January to September 2020. MRPs of Rs. 65 per 1 kg of dhal and Rs. 100 per 425g tin of canned fish, which were imposed with effect f0rom 18 March 2020 as provisions of relief to the consumers during the situation prevailed in the country following the COVID-19 outbreak were removed effective from 30 April 2020 with the relaxation of lockdown conditions. Subsequently, the SCLs on dhal and canned fish were increased to Rs. 10 and Rs. 100 per 1 kg, respectively, from 22 May 2020. Another relief measure taken during the lockdown period was to reduce the prices of eggs to Rs. 10 each with effect from 23 March 2020, recording the lowest for the year in April 2020. From May 2020 onwards, egg prices followed a continuous increasing trend, necessitating the decision taken to decrease price per egg by Rs. 2 with effect from 07 September 2020. Having foreseen an attempt to increase chicken prices during the festive season by creating an artificial scarcity of maize, MRPs of Rs. 430 and Rs. 500 on broiler chicken (with skin) and chicken (skinless), respectively were imposed, with effect from 12 March 2020. Even though the chicken prices declined accordingly in April 2020, the prices exhibited an increasing trend afterwards. Moreover, the MRP of maize was also brought to Rs. 55 per 1kg, with effect from 12 March 2020. SCLs on several more imported items were revised upwards from 22 May 2020, among which the SCLs for sugar, yoghurt, garlic, dried chilli and maize were revised upward to Rs. 50, Rs. 800, Rs. 50, Rs. 100 and Rs. 25 per 1 kg, respectively. A MRP of Rs. 750 was imposed on 1 kg of turmeric powder with effect from 21 April 2020 to curtail the rising prices resulting from import restrictions imposed effective from 06 December 2019 with the objective of increasing the local turmeric production. Despite these efforts, turmeric powder prices spiked in the following months owing to the substantial gap between the local supply and demand, resulting in the government removing the MRP with effect from 24 September 2020. Meanwhile, the prices of wheat flour remained stable during the period under review. Considering the difficulties which arose with the re-emergence of the risk in spreading of COVID-19 pandemic in the country, the SCL on several imported items such as dhal, canned fish and sugar was revised downwards to 25 cents per 1kg with effect from 14 October 2020.