Deflation still evident in Sri Lanka’s economy, but easing slowly

Deflationary conditions began easing in Sri Lanka in March in line with the Central Bank’s near term projections, the banking regulator said on Friday.

Headline inflation, as measured by the year-on-year (Y-o-Y) change in the Colombo Consumer Price Index (CCPI, 2021=100)  remained in the negative territory for the seventh consecutive month, yet recorded a slower deflation of 2.6 per cent in March 2025 compared to the deflation of 4.2 per cent recorded in February 2025. Deflation is a general decline in the prices of goods and services.

Non-Food deflation (Y-o-Y) decelerated to 4.1 per cent in March 2025 from 6.1 per cent in February 2025. Food category recorded an inflation (Y-o-Y) of 0.6 per cent in March 2025 compared to the deflation of 0.2 per cent recorded in February 2025.

On a month-on-month basis, the CCPI decreased by 0.31 per cent in March 2025 due to the combined effect of a 0.43 per cent decrease in the prices of items in the Food category and a 0.12 per cent increase in the prices of items in the Non-Food category. Meanwhile, core inflation (Y-o-Y), which reflects the underlying inflation trends in the economy, remained unchanged from the previous month at 0.7 per cent in March 2025.

The realised quarterly average headline inflation for Q1-2025 is in line with the Central Bank’s inflation projections. Looking forward, deflationary conditions are expected to ease further in the coming months, with inflation projected to turn positive by mid-2025 and gradually converge to the targeted level of 5 per cent over the medium term, aided by appropriate policy measures.