The key inflation rate in Sri Lanka eased to 54.2% in January, down from 57.2% in December, according to the country’s Census and Statistics Department. The Colombo Consumer Price Index (CCPI) showed a 60.1% increase in food prices and a 51% increase in the non-food group compared to the previous year. The high inflation rate is largely due to Sri Lanka’s worst financial crisis since gaining independence from Britain in 1948.
What is the expected future inflation rate in Sri Lanka?
According to Dimantha Mathew, head of research for Colombo-based investment firm First Capital, inflation is easing as expected and is projected to hit 51.9% next month and dip below 50% by March, as long as there are no increases in electricity prices. However, the central bank is unlikely to loosen policy rates until the island receives financing assurance from China and Japan for a $2.9 billion bailout plan with the International Monetary Fund. The central bank has held interest rates steady for the past three meetings, stating that the tight monetary stance is crucial for reducing inflation and restoring economic stability.
Why is the Colombo Consumer Price Index closely watched?
The Colombo Consumer Price Index is closely watched as a lead indicator for broader national prices, reflecting how inflation is evolving in the largest city of Colombo. Sri Lanka’s national consumer price inflation, which is released with a lag of 21 days every month, eased to an annual rate of 59.2% in December, down from 65% in November.