Sri Lanka Inflation Drops to Minus 1.7% Amid Strong Economic Recovery
Consumer prices in Sri Lanka have continued to decline, with inflation dropping to minus 1.7% year-on-year in November 2024, compared to minus 0.7% in October. The National Consumer Price Index (NCPI), which tracks broad retail price changes, reported the sharpest deflation in nearly a decade.
Food prices in November remained flat at 0.0%, following a 1.3% rise in October, while the non-food category saw prices fall further, recording minus 3.1% compared to minus 2.3% in the previous month.
The decline in prices was driven by reduced power tariffs, lower fuel prices, and a stronger rupee.
“We are likely to see inflation remain at these levels for the first two months of 2025,” Reuters quoted Shehan Cooray, head of research at Acuity Stockbrokers. “However, if foreign exchange pressures arise due to a potential resumption of vehicle imports, inflation could gradually rise, but it is unlikely to exceed 4%.”
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Just two years ago, Sri Lanka witnessed one of its worst financial crises in decades, with the NCPI reaching as high as 65% in November 2022.
The crisis, triggered by a severe shortage of foreign exchange reserves, led to soaring prices and economic instability. In March 2023, the country secured a $2.9 billion bailout package from the International Monetary Fund (IMF), which helped stabilize the economy and set the stage for recovery.
Taking advantage of the deflationary trend, the Central Bank of Sri Lanka introduced a new single policy rate of 8% last month, easing monetary policy to support growth. Analysts view this as a critical step toward rebuilding economic resilience and sustaining recovery efforts.
While the World Bank projects that the country’s economy will grow by 4.4% this year, the central bank’s data projects economic growth of 4.5% to 5% by the end of 2024.
