Economics

National Consumer Prices Drop to 1.1% in August Amid Lower Food and Electricity Costs

In August 2024, Sri Lanka’s national consumer prices eased to 1.1% year-on-year, down from 2.5% in July. This significant deceleration was driven primarily by declining food prices and reduced electricity tariffs, offering financial relief to consumers.

On a month-to-month basis, consumer prices fell by 1.4% in August, accelerating from the 0.6% decline recorded in July. The drop was largely attributed to a 1.8% fall in food prices in August, reversing the 0.5% increase seen in July.

Despite this monthly decline, annual food prices still saw a 2.3% rise in August, though down from the 2.9% growth recorded in July. Key food items, such as vegetables, fresh fish, eggs, and chicken, experienced price drops, offsetting increases in a few other staples.

Non-food inflation also fell by 1.0% in August, following a 1.4% drop in July. Annually, non-food prices rose just 0.2%, down from 2.2% in July. This decline was largely due to a government reduction in electricity tariffs, driven by increased hydroelectric capacity and lower global energy costs.

The Central Bank’s Monetary Policy Board is scheduled to meet to assess whether current policy measures are sufficient to support the growing economy. The economy expanded by 5.0% in the first half of 2024, buoyed by robust manufacturing and service activities, increased remittances, tourism inflows, and eased financial conditions.

Market expectations are split between maintaining the current policy or introducing a 25-basis-point rate cut. The Central Bank anticipates inflation will remain below the 5.0% target through the first half of next year, with a slight increase expected later.