Sri Lanka records single-digit inflation for the first time in two years

Inflation in cash-strapped country dips from 69.8 per cent in September 2022 to about 6.3 per cent this July

A man rides a bicycle walk past slogans painted on a wall against the government near the presidents office residence in Colombo on 21 July 2022 (AFP via Getty Images)

Cash-strapped Sri Lanka saw its inflation dip to a single digit for the first time since the economic crisis started in the country nearly two years ago.

The key inflation rate dipped from 69.8 per cent in September 2022 to 6.3 per cent in July this year. It stood at 12 per cent in June, according to latest figures released by the statistics department on Monday.

The last time the country recorded single-digit inflation was in September 2021, when it stood at 5.8 per cent.

Soaring inflation has battered the island nation’s economy for more than a year after a severe foreign exchange crisis set off its worst financial crisis in seven decades.

The crisis had forced Sri Lanka to pre-emptively default on foreign debts amounting to $51bn in April 2022, while its gross domestic product dipped by 7.8 per cent.

The Colombo Consumer Price Index (CCPI) reflected food inflation hitting a negative 1.4 per cent from 4.1 per cent in June. Non-food inflation was 10.5 per cent, the country’s census and statistics department said in a statement.

Food inflation last September was at 94 per cent.

“Inflation is tapering off faster than expected, helped partly by the appreciation of the rupee, which is making imports cheaper,” said Shehan Cooray, head of research at Acuity Stockbrokers.

“We expect inflation to keep reducing and end the year below five per cent.”

In the last six months, inflation has gradually eased from a high of 50.6 per cent in February after the government changed the base year of inflation in its calculation from 2013 to 2021.

After Sri Lanka secured a $2.9bn bailout from the International Monetary Fund (IMF) in March, its economic stress is slowly subsiding and its currency appreciating about 10 per cent this year along with improving reserves.

Inflation has come down sharply in the last two months from the runaway levels seen earlier, partly due to the statistical base effect, but also helped by better harvests and a stronger rupee, which has lowered costs for food, fuel and power.

But the economy is expected to record a two per cent contraction, according to government estimates, after shrinking 7.8 per cent last year.

Additional reporting by agencies