Sri Lanka’s Inflation Drops

(Reuters) – Sri Lanka’s consumer price inflation fell to -1.7% year-on-year in November after a decline to -0.7% in October, according to official data released on Monday. This drop comes as the country rebounds from its worst financial crisis in decades.

The National Consumer Price Index, which tracks broad retail price inflation, is published with a 21-day lag each month.

Food and Non-food Prices

In November, prices in the food category remained stable at 0.0%, down from 1.3% in October. The non-food category saw prices decrease to -3.1% from -2.3% in October.

Analysts attribute the drop in inflation to reductions in power tariffs and fuel prices, along with a strengthening rupee, marking the lowest inflation rate in nine years.

Future Projections

“We expect inflation to stay at these levels for the first two months of 2025,” said Shehan Cooray, head of research at Acuity Stockbrokers. However, if foreign exchange pressures arise from renewed vehicle imports, inflation may gradually increase but is unlikely to exceed 4%.

Sri Lanka experienced record inflation following its financial crisis in 2022, which was triggered by a significant drop in dollar reserves hurting the economy.

Since securing a $2.9 billion bailout from the International Monetary Fund (IMF) in March 2023, the island nation has stabilized.

In light of low inflation, Sri Lanka’s central bank set a new single policy rate of 8% last month, easing monetary policy to support recovery from the crisis.

The economy is projected to grow by 4.5-5% in 2024, slightly above the World Bank’s estimate of 4.4%, according to central bank data.