Sri Lanka posts record-low 2.1pc inflation in 2025 amid weak demand

AFP :

Sri Lanka’s inflation rose by just 2.1 percent in 2025, significantly below the central bank’s five percent target, underscoring persistent economic challenges even as price pressures remain historically low, the Central Bank of Sri Lanka said Thursday.

The Colombo Consumer Price Index (CCPI) climbed to 195.8 in December from 191.7 a year earlier.

Despite the subdued headline figure, the central bank forecast a “gradual acceleration” of inflation toward its target in 2026.

While low inflation might appear beneficial for consumers, it also reflects weak domestic demand a symptom of ongoing economic fragility following Sri Lanka’s severe financial crisis of 2022 when foreign exchange reserves collapsed and the country struggled to import essentials like food, fuel, and medicines.

The economy has shown signs of stabilisation with support from a $2.9 billion IMF bailout agreed in early 2023 and an additional $206 million emergency IMF loan approved in December to assist with relief and reconstruction after Cyclone Ditwah.

Despite these supports, structural vulnerabilities persist, and international lenders say reforms must continue to sustain recovery.

The World Bank and IMF have both highlighted the importance of fiscal discipline, revenue mobilisation, and resilience against external shocks as Sri Lanka navigates a cautious rebound.

Economists also note that while headline inflation is low, core inflation and food price pressures are emerging, partly due to cyclone-related supply disruptions and weaker domestic demand conditions.

As Sri Lanka pushes forward, policymakers face the delicate task of balancing inflationary pressures, economic growth, and social stability amid global uncertainties and ongoing reform commitments.