Rising food prices drive Sri Lanka inflation up to 4.2% in December : CBSL

Sri Lanka's consumer price inflation rate jumped to 4.2% year-on-year in December driven by rising food prices, official data showed on Monday, although it remains well below record high levels seen at the height of the country's financial crisis.

Food prices rose 1.6% in December after falling 2.2% in November on the year, the Department of Census and Statistics said in a statement.

Prices for non-food items, however, fell 6.3% in December from 7.1% year-on-year in November.

The National Consumer Price Index (NCPI) captures broader retail price inflation and is released with a lag of 21 days every month. It rose from 2.8% in November.

Sri Lanka racked up record high inflation that peaked at 70% in September 2022 after its economy was pummelled by the worst financial crisis in decades, triggered by a plunge in foreign exchange reserves.

Targets to improve public finances, which included raising power prices by 18% in October, have also hit inflation, analysts said.

The Central Bank of Sri Lanka (CBSL) is expected to leave its key policy rates unchanged on Tuesday to control inflation after cutting interest rates by 650 basis points since it started an easing cycle in June 2023 to help fuel an economic recovery from recession last year.

Inflation is expected to stabilise around the targeted level of 5% over the medium term, supported by appropriate policy measures and well-anchored inflation expectations. Nevertheless, a temporary uptick in inflation is likely in the near term mainly due to the proposed value added tax (VAT) increase and its possible second-round impact according to the Central Bank of Sri Lanka.