February 24, Colombo (LNW): Sri Lanka’s national consumer price inflation slowed to 0.9 per cent in January 2025, down from 1.1 per cent in December 2024, reflecting moderate increases in both food and non-food categories.
However, on an annual basis, prices fell by 4.0 per cent for the 12 months leading up to January, deepening the deflationary trend that has persisted for the fifth consecutive month.
The ongoing deflation appears to be largely driven by a reduction in consumer spending following the festive season, which has eased pressure on the prices of essential food items.
Additionally, the significant reduction in electricity tariffs from mid-January helped to prevent further price hikes in other sectors.
Despite the monthly price increases, the overall annual deflationary trend continued to strengthen, with prices now 4.0 per cent lower compared to the same period last year, a sharp contrast to the 2.0 per cent decline recorded in December.
This marks the fifth straight month of falling prices, which began in September 2024 in response to consistent cuts in fuel prices and electricity tariffs.
The Central Bank has indicated that it expects this period of deflation to persist through the first quarter of 2025, with inflation expected to return to positive territory by the second quarter of the year.
In its latest biannual Monetary Policy Report, the Central Bank projected that inflation would rise to exceed its medium-term target of 5.0 per cent between the final quarter of 2025 and the first quarter of 2026.
The report suggests that inflation could peak at around 7.0 per cent in the second quarter of 2026, before stabilising.
Food prices in January saw a more moderate increase of 1.0 per cent, a sharp slowdown from the 2.6 per cent rise in December. The prices of various food staples, including lime, big onions, chicken, eggs, and sugar, saw noticeable declines.
However, the prices of rice, a persistent issue for consumers, continued to climb, as did the prices of vegetables, fresh fish, and coconut products. Notably, coconut prices saw the largest increase in the food basket, making it increasingly difficult for ordinary consumers to afford.
Annual food prices decreased by 2.5 per cent, accelerating from the 1.0 per cent decline recorded in December. This reflects a broader trend where, despite occasional rises in certain categories, overall food prices remain lower than they were a year ago.
Sri Lanka is still recovering from a staggering 70 per cent increase in price indices in 2022, which was largely sustained through the first half of 2023.
In the non-food category, prices rose by 0.8 per cent in January, reversing the 0.8 per cent decline seen in December. However, on an annual basis, non-food prices fell by 5.2 per cent, a more substantial decline compared to the 2.9 per cent decrease recorded in December.
The reduction in electricity tariffs, which averaged 20 per cent, helped to keep non-food prices under control. Nevertheless, increases in housing rents, education expenses, and transport costs, driven by rising vehicle servicing costs, exerted upward pressure on non-food price inflation.
