Sri Lanka's Inflation Showing Steep Decline

The National Consumer Price Index (NCPI) in Sri Lanka fell to 33.6 percent year on year in April, down from 49.2 percent in March, according to the statistics department on Monday.

The NCPI measures broader retail price inflation and is released every month with a 21-day lag.

Food price increases fell drastically to 27.1 percent in April from 42.3 percent in March, but non-food inflation remained at 39 percent, according to the Department of Census and Statistics.

The information comes as an IMF team arrives in Colombo to assess Sri Lanka's economy for the first time since the global lender granted a nearly $3 billion bailout in March. Sri Lanka is grappling with its worst financial crisis in seven decades, triggered by a severe shortfall of foreign exchange.

Sri Lanka has been struggling with soaring inflation since early last year but it has been decreasing in 2023, with analysts predicting it will reach single-digit levels by September.

"This decrease is primarily due to the high base effect from last year, as well as recent reductions in transportation costs." "We expect inflation to fall dramatically over the next two months to around 20% or even lower," said Dimantha Mathew, head of research at First Capital Holdings.

Inflationary pressures may also push the Central Bank of Sri Lanka (CBSL) to lower interest rates, possibly as early as August, according to Mathew.

The Colombo Consumer Price Index, which is reported at the end of each month, fell to 35.3 percent in April from 50.3 percent in March, according to figures from the statistics department.