Key inflation rate rises to 1.5% in April

Sri Lanka’s key inflation rate rose to 1.5% year-on-year in April from 0.9% in March, the statistics department said.

The Colombo Consumer Price Index, a leading indicator for broader national prices, tracks inflation in Colombo, Sri Lanka’s biggest city.

The Department of Census and Statistics reported that food prices rose 2.9% in April from 3.8% in March.

Prices for non-food items rose 0.9% in April from 0.5% in March, with prices remaining low due to a 22% reduction in power tariffs for households implemented in March.

“This is broadly in line with what we are expecting. More than changing prices, what we are seeing kicking in is the high base effect from last year,” said Raynal Wickremeratne, co-head of research at Softlogic Stockbrokers.

“After the next three months, we expect it to hover around 5%.”

Sri Lanka racked up record-high inflation that peaked at 70% in September 2022 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 program from the International Monetary Fund, Sri Lanka’s economy has slowly stabilized and is expected to grow by 3% in 2024 after two years.

Sri Lanka’s central bank said in a report last week that inflation is likely to remain in line with the 5% target in the medium term.

Taking advantage of receding inflation, the Central Bank of Sri Lanka has reduced policy rates by 700bps since last year to help the island nation’s economy return to growth.