Consumer price inflation eases to 2.1%

COLOMBO: Sri Lanka’s consumer price inflation rate eased to 2.1% year-on-year in August from 4.6% in July, helped by falling food prices, the statistics department said in a Reuters report.

The National Consumer Price Index (NCPI) captures broader retail price inflation and is released with a lag of 21 days every month.

Food prices fell 5.4% in August after declining 2.5% in July from a year earlier, the Department of Census and Statistics said in a statement.

Prices for non-food items, however, climbed 9% in August after rising 10.9% year-on-year in July.

Sri Lanka’s $2.9-billion bailout secured from the International Monetary Fund (IMF) in March topped up foreign reserves — which had dwindled to record lows in early 2022, plunging the island into its worst financial crisis in more than seven decades — and helped stabilize the economy.

Since June, Sri Lanka’s inflation has come down sharply from the runaway levels seen earlier, partly due to the statistical base effect, but also helped by a stronger rupee currency, and improved harvests.

“Once the base-effect ends in September, we expect a slight uptick in inflation, but it is unlikely to be significant. Inflation is likely to end the year at about 5%,” said Shehan Cooray, head of research at Acuity Stockbrokers.

An IMF delegation is currently in Sri Lanka for the first review of the program, which requires the country to show progress in restructuring its mammoth debt including with bilateral lenders Japan, China and India.

Encouraged by inflation easing faster than expected, Sri Lanka’s central bank cut policy rates by a combined 450 basis points in June and July this year, after raising them by a record 1,050 basis points between April 2022 and March this year.

The economy is still expected to contract by 2% in 2023 after shrinking 7.8% last year.