Sri Lanka inflation rate eases to 0.8% in Sept vs 2.1% in Aug

COLOMBO (Reuters) -Sri Lanka’s consumer price inflation rate eased to 0.8% year-on-year in September from 2.1% in August, the statistics department said on Monday.

The National Consumer Price Index captures broader retail price inflation and is released with a lag of 21 days every month.

Food prices fell 5.2% in September after declining 5.4% in August, from a year earlier, the Department of Census and Statistics said in a statement.

Prices for non-food items, however, climbed 5.9% in September after rising 9% year-on-year in August.

Sri Lanka experienced record high inflation after its economy was pummelled by the worst financial crisis in decades.

But since June, its inflation has come down sharply, partly due to the statistical base effect, but also helped by a stronger rupee currency, and improved harvests.

Sri Lanka raised power prices for households by 18% last week but the increase is unlikely to significantly push up inflation, analysts said.

“We expect inflation to end the year at about 5%. A small increase is expected as the base effect is coming to an end from September but the impact from price adjustments is not expected to be severe,” said Dimantha Mathew, head of research at First Capital Research.

Sri Lanka secured a staff level agreement on the first review of its $2.9-billion bailout from the International Monetary Fund (IMF) last Friday but it still needs approval from the global lender’s Executive Board.

The island needs to finalise debt restructuring talks with main bilateral lenders including Japan and India as well as bondholders to get past the first review and secure a second tranche of about $330 million.

The battered economy is still expected to contract by 2% in 2023 after shrinking 7.8% last year.

(Reporting by Uditha Jayasinghe in Colombo and Rama Venkat in Bengaluru; Editing by Bernadette Baum, Robert Birsel)