Sri Lanka inflation to rise to 7 % in January 2024– CB Governor

Sri Lanka’s inflation is expected rise to 7 per cent in January 2024 as a result of bad weather conditions and the Value Added Tax (VAT) implementation, Central Bank Governor Nandalal Weerasinghe told a media conference in Colombo on Tuesday.

The inflation rate is based on the Colombo Consumer Price Index, “The December inflation number came out at 4 per cent. We think there will be a one-off impact of 3-4 per cent by end of January. It will be a one- off increase and will gradually fade out. Our target is to bring it down to 5 per cent,” he said.

The VAT was increased by 3 per cent from 15 per cent to 18 per cent, with effect from 1 January 2024, after the VAT (Amendment) Bill was passed in parliament on 11 December 2023

Headline inflation is projected to record an upward movement in the near term, as expected, driven mainly by domestic price adjustments due to the increase in the VAT and the elimination of certain VAT exemptions effective 1 January 2024, disruptions to the domestic food supply, and the dissipation of the favourable statistical base effect.

However, this acceleration of inflation in the near term is expected to be short-lived, and the spillover effects of such one-off adjustments are likely to be muted due to subdued underlying demand conditions, he pointed out.

Therefore, over the medium term, headline inflation is expected to gradually stabilise around the targeted level of 5 per cent (year-on-year), supported by appropriate policy measures.

Headline inflation, as measured by the year-on-year change in the Colombo Consumer Price Index (CCPI, 2021=100), was recorded at 4.0 per cent in December 2023 compared to 3.4 per cent in November 2023.

Following five consecutive months of deflation, the food category recorded inflation (year-on-year) in December 2023 reflecting mainly the weather-related disruptions, while non-food inflation (year-on-year) moderated compared to the previous month. (Bandula)