Sri Lanka’s key inflation rate eases sharply to 12% in June

SRI Lanka’s key inflation rate eased sharply to 12 per cent in June from 25.2 per cent in May, the statistics department said on Friday (Jun 30), showing a glimmer of recovery for the crisis-ridden economy.

Soaring inflation has battered the economy for more than a year after a severe foreign exchange crisis set off the Indian Ocean island’s worst financial crisis in seven decades.

The Colombo Consumer Price Index (CCPI) reflected a sharp reduction in food inflation to 4.1 per cent in June from 21.5 per cent in May. Non-food inflation was 16.2 per cent, the Census and Statistics Department said in a statement.

“Inflation is reducing faster than projected. Sri Lanka was expected to hit single digit inflation in September but now we are likely to reach that target in July,” said Dimantha Mathew, head of research, First Capital Holdings.

A steep fall in food costs, petroleum prices and electricity tariffs is expected to help lower inflation in the South Asian country of 22 million people.

Sri Lanka’s central bank, which reduced interest rates by 250 basis points in early June, is expected to slash rates further in its upcoming policy annoucement next Thursday, analysts said.

“We expect the central bank could reduce rates by as much as another 250 basis points,” Mathew added.

After securing a $2.9 billion bailout from the International Monetary Fund in March, Sri Lanka’s economic stress is slowly subsiding with its currency appreciating and reserves improving.

But the economy is expected to record a 2 per cent contraction, according to government estimates, after shrinking 7.8 per cent last year.

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The figure for national consumer price inflation, released with a lag of 21 days every month, eased to 22.1 per cent year-on-year in April. REUTERS