ECONOMYNEXT – Sales of popular soft drinks, ice creams and convenience foods grew as demand recovered amid falling prices and costs, John Keells Holdings, the maker of the island’s Elephant House branded foods.
“Sustaining the encouraging growth momentum witnessed in the previous quarters, the Beverages (carbonated soft drinks segment) and Confectionery businesses recorded volume growth of 16 percent and 22 percent, respectively,” JKH told shareholders.
“Both the Beverages and Confectionery businesses recorded a sustained improvement in margins on account of lower raw material prices, electricity costs and the increased operating leverage due to higher volumes enabling absorption of fixed costs.”
Sri Lanka has seen almost no inflation since the central bank’s deflationary policy started to show up in the balance of payments around September 2022, while some prices, especially traded goods fell as the rupee was allowed to appreciate by the central bank.
“The Convenience Foods business recorded an increase in profitability driven by an improvement in volumes,” JKH said.
“The increase in demand is due to a rise in consumer activity on the back of a stable economy, which also resulted in consumers shifting their spend towards more discretionary items.
“The strategic price revisions undertaken in the previous year, which improved product affordability, also contributed towards volume growth.”
Sri Lanka’s central bank missed its 5 percent a year inflation targeting which it had got the discretion to push up to 7 percent, giving rare stability with East Asia style deflationary policy.
Central bank has conducted so-called flexible inflation targeting using backward looking statistics to cut rates and print money to target potential output and depreciating the currency without a war, triggering social unrest, political instability and outmigration.
Inflationist macro-economists believe that high inflation (so-called price pressure) is needed for economies grow and that there is a trade-off between inflation and growth.
The belief re-gained ground in 2001 with then Vice Chair Ben Bernanke pushing Fed Chief Alan Greenspan to cut rates to the bottom, firing the housing bubble and multiple commodity bubbles, in the process, ending 20 years of gently falling prices known as the Great Moderation.
Oil prices which were around 35 dollars in 1979/1980 when then Fed Chief Paul Volker ended full-employment policies fell to around 15/16 dollars, when reflation started as Bernanke fired a ‘deflation’ scare.
Gold fell from 800 to 274 dollars an ounce in the 20 years, helping reduce poverty and firing an industrial export revolution in East Asia which followed deflationary policy and pegged to the US importing the befits of Great Moderation.
When macro-economist in the US and UK started full employment policies, printing money without a war denying monetary stability in the 1960s, jettisoning economic principles for statistics, oil was around 3 dollars a barrel and gold 35 dollars an ounce.
Under a specie standard, commodity prices were stable over long periods and there was no concept of ‘core inflation’.
At the time Sri Lanka had 1 or 2 percent inflation generally in step with the US and food was 80 percent of the consumer price index and commodity prices were not volatile as under floating exchange rates.
Sri Lanka’s central bank has promised a return to five percent inflation, ending stable or falling prices seen over the past years, which has been helped by tighter policy by the Federal Reserve and currency stability provided by Sri Lanka’s central bank.
A rate cut in May has also drawn concern on fears that it will be similar to mis-steps made in 2015, 2018, late 2019 and 2020 and will lead to a return to instability and social unrest and an inability to service external debt. (Colombo/May28/2025)
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