August 02, Colombo (LNW): Sri Lanka’s annual inflation gathered further momentum in July, with the latest figures showing consumer prices continued to rise despite signs that tighter monetary policy is beginning to restrain demand across the economy.
According to the Colombo Consumer Price Index (CCPI) released jointly by the Central Bank of Sri Lanka and the Department of Census and Statistics, headline inflation increased to 7.3 per cent in July, up from 6.8 per cent recorded in June. The acceleration was largely driven by food prices, with food inflation climbing to 6.3 per cent from 3.6 per cent a month earlier. In contrast, non-food inflation moderated to 7.8 per cent, easing from June’s 8.4 per cent.
Despite the uptick in inflation, Central Bank Governor Dr Nandalal Weerasinghe has expressed confidence that the policy measures introduced earlier this year are beginning to deliver the intended results. Speaking on 22 July, he said the 100-basis-point increase in policy interest rates implemented in May has started to cool domestic demand, while growth in imports and private sector lending has also begun to slow.
The Governor noted that these developments indicate monetary tightening is gradually filtering through the economy and should help contain price pressures in the coming months. Although inflation is expected to remain above the Central Bank’s medium-term target of 5 per cent for the time being, he attributed this largely to temporary price adjustments and external influences rather than sustained underlying demand pressures.
He further stated that inflation expectations remain stable, with the Central Bank continuing to project a return to its 5 per cent target over the medium term as the full impact of recent policy decisions takes effect.
Sri Lanka’s external sector has also continued to show resilience. Gross Official Reserves stood at around US$6.45 billion at the end of June 2026, despite the continuation of foreign debt servicing commitments. The Central Bank remains optimistic that reserves will surpass US$8 billion before the end of the year, reflecting a marked improvement in the country’s external position compared with the height of the economic crisis. Earlier in 2026, reserves had reached US$7.3 billion by the end of February, underscoring the steady rebuilding of external buffers.
Meanwhile, public finances have strengthened considerably. Central Bank data show that the Government recorded a budget surplus of Rs. 197.3 billion during the first five months of 2026, a significant turnaround from the Rs. 236.6 billion deficit reported during the corresponding period last year. The improvement was supported by robust revenue growth of more than 30 per cent, highlighting continued progress in fiscal consolidation and reinforcing confidence in Sri Lanka’s broader economic recovery.