Colombo, Sri Lanka's largest city, has returned to inflation for the first time in 12 months, signaling a clear economic recovery trend.
Latest Inflation Trends
Key indicators announced by Sri Lanka's Department of Census and Statistics (DCS) on August 29, 2025:
August 2025 Consumer Price Index (CCPI)
- Overall Inflation: 1.2% year-on-year
- Food Sector: 2.0% year-on-year
- Non-food Sector: 0.8% year-on-year
- Notable Point: End of deflationary period that persisted since September 2024
Central Bank Outlook and Policy
Inflation Forecast
Outlook from Central Bank of Sri Lanka (CBSL) Monetary Policy Report (announced August 15, 2025):
- Inflation expected to gradually accelerate
- Moving toward government target of 5%
- Target achievement timing: Mid-2026
Risk Factors
Upside Risks:
- Price increases from geopolitical tensions
- Supply constraint impacts
- Abnormal weather effects on hydropower
- Climate change impacts on agricultural activities
Downside Risks:
- Food price declines from increased crop harvests
- Demand reduction from US tariff increases
Monetary Policy Trends
Recent Policy Rate Movements
- May 2025: Overnight Policy Rate (OPR) reduced from 8.00% to 7.75%
- July Policy Meeting: Maintained policy rate
- Outlook: Expected to turn to price increases during Q3 2025 (July-September)
Economic Significance
Colombo's inflation transition marks an important indicator of Sri Lanka's economic normalization. The shift from prolonged deflation to moderate inflation is evaluated as a sign of healthy economic growth.
Background Information
- CCPI base year: 2021 = 100
- Monetary Policy Report: Biannual publication mandated under amended Central Bank Act Article 27
- Report content: Price trends, economic growth outlook, risk analysis
Future attention will focus on monetary policy management toward achieving the government's 5% inflation target.