Inflation rises slightly in Colombo district to 2.4% in July

Inflation in the Colombo district increased to 2.4 percent in July from a year ago, up from June’s 1.7 percent, as favorable base effects began to wane. 

However, on a monthly basis, prices fell by 0.5 percent in July compared to June, driven by a decline in food prices and a significant drop in non-food prices. This decline was largely attributed to a sharp reduction in power tariffs and fuel prices earlier in the month.

The Central Bank expressed confidence last week that medium-term inflation risks are balanced, assuming no external shocks. It maintained its 5 percent medium-term inflation target and proceeded with a 25 basis point rate cut, suggesting there is still room for credit expansion and economic acceleration without triggering inflationary pressures.

Despite recent lower inflation readings, Sri Lankan consumers continue to face financial strain following over 70 percent inflation in 2022 and significant tax hikes, which have eroded disposable incomes.

In July, food prices rose by 1.5 percent year-over-year, slightly up from a 1.4 percent increase in June. However, on a monthly basis, food prices saw a marginal increase of 0.1 percent, down from a 2.8 percent rise between April and May. Price increases in some staples were largely offset by declines in others.

Non-food prices, which contributed to a softer overall inflation reading in July, increased by 2.8 percent year-over-year, up from 1.8 percent in June. Notably, the non-food index fell by 0.7 percent on a monthly basis, primarily due to the sharp cut in electricity tariffs and reductions in fuel and gas prices. Authorities have announced there will be no further gas price revisions in August.

Meanwhile, core prices, which exclude volatile items such as food, energy, and transport, remained steady at 4.4 percent in July, unchanged from June.