The Sri Lankan economy continues to grapple with deflationary pressures, as indicated by a 3.0 percent year-on-year decline in producer prices across various industries, according to the Producer Price Index released by the Census and Statistics Department.
This downward trend in producer prices has been ongoing since June of the previous year, coinciding with a notable turnaround in consumer prices.
The Producer Price Index serves as a leading indicator for consumer prices, offering insights into potential future inflationary trends. Despite this, consumer price inflation eased to 5.9 percent over the last 12 months in February, down from 6.4 percent in January.
This moderation can be attributed to improved supply conditions and the gradual fading of one-off impacts from the Value Added Tax hike.
While overall producer prices rose by 2.0 percent on a month-on-month basis in February, the agricultural sector witnessed the highest increase, with prices surging by 5.8 percent compared to December 2023 levels.
Extreme weather conditions have significantly impacted the agricultural sector, leading to astronomically higher vegetable and food prices, although recent trends indicate a moderation in price levels.
In contrast, the manufacturing sector experienced a more modest increase of 1.5 percent in prices during the same period, reflecting efforts by manufacturers to absorb cost increases amidst consumer resistance to higher-priced products.
Furthermore, the utility group, encompassing electricity, gas, steam, air conditioning, and water supply, saw a slight uptick of 0.6 percent in prices in January compared to the previous month.
