Inflation in Colombo fell further into deflationary territory in November 2024, as anticipated by the Central Bank, with a significant decline in non-food prices and a slower decrease in food prices compared to the previous month.
The Colombo Consumer Price Index (CCPI) saw a 2.1% drop in the year through November 2024, a sharper decline than the 0.8% decrease recorded in October 2024. This marks the third consecutive month of deflation, and the Central Bank expects this trend to continue through much of the first half of 2025.
The current deflationary trend has provided the Central Bank with more room to reduce interest rates, which they did last week by 50 basis points, setting the Overnight Policy Rate at 8.00%. This move aims to stimulate demand and bring inflation back toward the 5.0% target, which is projected for the second half of next year.
On a monthly basis, consumer prices fell 0.3% in November, continuing a five-month streak of declining prices. The price drops were largely driven by cuts to fuel prices and reductions in electricity and water tariffs, which had previously contributed to soaring inflation in 2022.
The government’s actions to reduce fuel prices helped lower transport costs, including bus and three-wheel fares, contributing to a 3.3% year-on-year decrease in the non-food price basket by November 2024, a faster pace than the 1.6% drop recorded in October. On the food side, prices decelerated to a 0.6% increase from a 1.0% rise in October. Monthly food prices also saw a slight reduction of 0.1% in November.
Core prices, excluding volatile food, energy, and transport costs, rose by 2.7% in the year through November, easing from 3.0% in October, indicating further softening of underlying inflation in the economy.
As Sri Lanka navigates through a period of deflation, the government and Central Bank are focused on maintaining stability and fostering growth as the country moves towards its inflation target in the coming year.