Inflation jumps to 2.8% in Nov from 1% in Oct

COLOMBO: Sri Lanka’s consumer price inflation rate rose to 2.8% year on year in November from 1% in October, the statistics department said.

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

Food prices fell 2.2% in November from 5.2% in October on the year, the Department of Census and Statistics said in a statement.

Prices for non-food items, however, surged 7.1% in November from 6.3% year-on-year in October.

Sri Lanka racked up record-high inflation last year after its economy was pummelled by the worst financial crisis in decades, triggered by a plunge in foreign exchange reserves.

Helped by a $2.9 billion bailout from the International Monetary Fund (IMF), inflation began to decline in June but is likely to increase from next month as Sri Lanka raises value-added tax to 18% from 15% to meet revenue targets set by the global lender.

Targets to improve public finances, which included raising power prices by 18% in October, have also hit inflation, analysts said, predicting inflation will end the year at about 5%.

“The VAT increase in January will increase inflation by about 2%-3% as items such as fuel, which were earlier exempted, will now be included,” said Dimantha Mathew, head of research at First Capital.

“We expect inflation to hit about 8% by June next year.”

The Central Bank of Sri Lanka (CBSL) last month said it would suspend its monetary policy easing in the medium term after slashing interest rates by 650 bps since June to boost growth.

It has set an inflation target of 4%-6% in the medium term.

Sri Lanka’s economy is expected to contract by 3.6% this year, according to the IMF, after shrinking 7.8% in 2022.

Full-year growth will return next year, with the Sri Lankan economy projected to grow 1.8%.