Inflation in Sri Lanka hit a one-year high in February as low interest rates spurred consumer demand for goods and as commodity prices rose, data showed on Friday.

Consumer prices rose 6.9 percent this month from year-ago levels, its highest since February 2009 and edging up from last month's 6.5 percent. Inflation hit a record high of 28.2 percent in June 2008 as global oil prices surged.

"This is expected," said Chrishani Ekanayake, an economic consultant at Frands Consultant. "We expect inflation to accelerate further as globally inflation is on the rise and with our imports it will be add to increase in prices."

The 12-month moving average inflation was steady at a record low of 3.1 percent this month, the same as January, and analysts expect it to reverse its downward trend from next month onwards. It hit a 6-year high of 23.4 percent in October, 2008.

Economists surveyed by Reuters had forecast February CPI inflation at 7.5 percent while annual average inflation was seen at 3.1 percent. [ID:nSGE61P04B]

Analysts said inflation will pick up continuously due to a low base effect last year and as consumer spends more due to low interest rates and optimism after the end of the island's long civil war last year.

Some analysts expect inflation to quicken if the government under newly re-elected President Mahinda Rajapaksa continues its high spending without fiscal reform to increase state revenues.

On Thursday, the International Monetary Fund (IMF) said average inflation would stabilise in the high single digits and year-on-year inflation should peak in mid 2010 before reversing in the second half of the year.

The IMF has delayed the third tranche of a $2.6 billion loan to Sri Lanka after the government missed its 2009 deficit reduction targets. [ID:nSGE61O0GP]

The IMF also said it sees little sign of emerging demand-driven inflationary pressures, with Sri Lanka's bank lending only beginning to rebound slowly and economic growth remaining below its potential.

The central bank predicts the economy to grow up to 7 percent in 2010, which would be a four year high, after having growth slowed to an eight-year low of around 3.5 percent last year.

Investor confidence in the $40 billion economy surged after the end of the 25-year war in May, attracting over $1.6 billion foreign investments in government debt and enable the central bank to sell a 5-year, $500 million sovereign bond last year.

Source Reuters