Consumer price inflation (CPI) in Sri Lanka decreased to 2.5 percent in March from 5.1 percent in February. This decline can be attributed to the diminishing impact of a higher sales tax implemented to meet targets set under a $2.9-billion IMF program. The National Consumer Price Index (NCPI), which measures broad retail price inflation, is published monthly with a lag of 21 days.
The significant factor behind the decrease in inflation was a 22 percent reduction in power tariffs for households, resulting in a mere 0.7 percent increase in prices in the non-food category in March, compared to a 5.1 percent increase in February.
Food prices remained unchanged at 5 percent in March compared to February, according to a statement by the Department of Census and Statistics.
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Shehan Cooray, head of research at Acuity Stockbrokers, expressed confidence in the expectation that inflation would remain below the target level of 5 percent for the upcoming three months.
Severe financial crisis
Sri Lanka experienced a severe financial crisis in 2022, leading to a record high inflation rate of 70 percent in September of that year. To address the crisis, the country secured a $2.9-billion bailout from the International Monetary Fund (IMF) in the previous year. This assistance helped mitigate inflation, boost government revenues, and rebuild foreign exchange reserves.
IMF bailout
Moreover, the World Bank recently upgraded its forecast for Sri Lanka’s economy by 0.5 percent, projecting a growth rate of 2.2 percent for 2024. Cooray added that they anticipate even higher growth, possibly around 3 percent, citing a 4.5 percent growth in the last quarter of 2023.
The reduced inflation has also prompted the Central Bank of Sri Lanka (CBSL) to lower policy rates by 700 basis points since last year, aiming to facilitate economic recovery and growth.
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