(Reuters) - Sri Lanka's central bank on Monday revised up its end-2011 annual average inflation target to 7 percent by December from its earlier 6 percent, but said annual inflation may moderate from May after hitting a 26-month high of 8 percent this month.
The central bank had originally expected annual average inflation of 4 to 6 percent.
"Inflation on a year-on-year basis is likely to increase to around 8 percent in March 2011, due to the low base in March 2010," the central bank said in a statement.
"Year-on-year inflation is expected to decelerate from May 2011 onwards to reach 6.0-7.0 percent by the year-end, although annual average inflation may follow an increasing trend during the balance period of the year to record around 7 percent by December 2011."
The island nation's annual inflation hit a 25-month high of 7.8 percent in February mainly due to supply disruptions in local agricultural produce after two rounds of floods in the first two months of the year. [ID:nSGE71704Q]
"Unpredictable weather conditions could impact negatively causing temporary price increases. The continuous increase in the prices of key international commodities, especially that of crude oil, could also cause a one-off increase in inflation if it is passed through to domestic consumers."
However, the central bank said the ongoing fiscal consolidation process, increase in production in a post-war regime and appreciating trend in the rupee currency LKR= are expected to mitigate inflation.
The Indian ocean island nation's $50 billion economy is estimated to have expanded 8 percent in 2010, and the central bank had estimated growth at 8.5 percent this year, the highest rate since independence in 1948, fuelled by strong post-war macroeconomic optimism. [ID:nL3E7ES14J] (Reporting by Ranga Sirilal; Editing by Shihar Aneez)
source - in.reuters.com
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