The Central Bank of Sri Lanka anticipates headline inflation will exit its current deflationary trend and turn positive by the beginning of the third quarter in 2025, with expectations to stabilize within the targeted range by year’s end.
Appearing before the Committee on Public Finance (COPF) on June 5, Dr. Sujeetha Jegajeevan, Director of the Central Bank’s Economic Research Department, stated that inflation is expected to rise into positive territory by July and gradually align with the Central Bank’s inflation target. “By early next year, we will be within the targeted band,” she noted.
Since September 2024, Sri Lanka has been in a deflationary phase, with the Colombo Consumer Price Index (CCPI) recording a deflation rate of 0.7% in May, slightly easing from April’s 2.0% figure.
Central Bank Governor Dr. Nandalal Weerasinghe emphasized the difficulties of managing inflation in an environment where energy and transport costs—key components of the inflation index—remain highly volatile. “It is one of the reasons why a country like us cannot maintain a very low stable inflation,” he said, pointing to the fluctuating nature of these sectors as a persistent challenge.
Recent data highlights the impact of declining utility and transport costs on headline inflation. In May, prices in the housing, water, electricity, gas, and fuel category dropped by 8.8% year-on-year, while transport costs declined by 6.5%.
As the country heads into the second half of 2025, policymakers are cautiously optimistic about a return to positive, stable inflation, even as global and domestic price volatility continues to pose risks.