Sri Lanka’s consumer price inflation dropped significantly to 2.5 per cent in March, Reuters reported on Monday, citing an official,
This represents a welcome decline from 5.1 per cent in February and offers a glimmer of hope for the nation’s ongoing economic recovery.
This positive development is attributed to the receding impact of a sales tax hike implemented to meet targets set under a $2.9-billion loan programme with the International Monetary Fund (IMF).
The National Consumer Price Index (NCPI) serves as a key indicator of inflation and reflects a 21-day lag in reporting.
March’s decline was primarily driven by a 22 per cent reduction in electricity tariffs for households. This measure significantly lowered non-food inflation to a mere 0.7 per cent compared to 5.1 per cent in February.
However, food prices stayed unchanged at 5 per cent year-on-year in March compared to February, suggesting a potential area for future focus.
Analysts remain cautiously optimistic. Shehan Cooray, head of research at Acuity Stockbrokers, expressed hope that inflation will stay below the targeted 5 per cent level for the next three months.
The World Bank recently upgraded its 2024 growth forecast for Sri Lanka by 0.5 per cent, now projecting a 2.2 per cent expansion.
Analysts like Cooray believe the actual growth could be higher, potentially reaching three per cent, citing the strong performance of the last quarter of 2023 (4.5 per cent growth).
The Central Bank of Sri Lanka (CBSL) has also taken action to stimulate economic growth through policy rate cuts. Since last year, rates have been lowered by 700 basis points in an effort to encourage investment and spending.
