Sri Lanka's consumer price inflation soars to 2.8% YoY in November

Sri Lanka witnessed a surge in consumer price inflation, reaching 2.8 per cent year-on-year in November, up from 1 per cent in October, according to the statistics department's latest report on Thursday.

The National Consumer Price Index (NCPI), reflecting broader retail price inflation, is typically released with a 21-day lag each month.

In November, food prices experienced a decline of 2.2 per cent compared to the 5.2 per cent in October on a yearly basis, as reported by the Department of Census and Statistics.

On the other hand, non-food item prices saw a notable increase, rising to 7.1 per cent in November from 6.3 per cent year-on-year in October.

Inflationary crisis

Sri Lanka faced unprecedented inflation last year due to a severe financial crisis, triggered by a significant drop in foreign exchange reserves. While inflation began to decrease from June, it is anticipated to rise again in the coming months as Sri Lanka raises its value-added tax (VAT) from 15 per cent to 18 per cent to meet the revenue targets set by the International Monetary Fund (IMF), which provided a $2.9 billion bailout.

The measures to enhance public finances, including an 18 per cent increase in power prices in October, have also contributed to inflation, leading analysts to predict a year-end inflation rate of around 5 per cent.

Dimantha Mathew, the head of research at First Capital, highlighted that the VAT increase in January is expected to raise inflation by approximately 2 per cent to 3 per cent, particularly affecting items like fuel that were previously exempted. Mathew anticipates inflation reaching about 8 per cent by June next year.

The Central Bank of Sri Lanka (CBSL) recently announced the suspension of its monetary policy easing in the medium term, having already reduced interest rates by 650 basis points since June to stimulate growth. The CBSL has set an inflation target of 4 per cent to 6 per cent in the medium term.

According to the IMF, Sri Lanka's economy is projected to contract by 3.6 per cent this year after shrinking by 7.8 per cent in 2022. However, full-year growth is expected to return next year, with the Sri Lankan economy forecasted to grow by 1.8 per cent.

(With Reuters Inputs)