The central bank of Sri Lanka reported on Thursday that the country’s inflation rate increased by 2.1 percent last year, significantly below its objective of five percent. However, it predicted a “gradual acceleration” in 2026.
Although consumers may view low inflation favorably, a rate below the central bank’s objective indicates underlying economic problems, such as low consumer demand.
After running out of foreign exchange reserves to cover the cost of necessities like food, fuel, and medications in 2022, Sri Lanka has been gradually recovering from its worst economic crisis.
But it was hit hard in November by a cyclone that killed at least 643 people — with another 183 listed as missing — and affected more than 10 percent of the island’s population.
The storm caused an estimated $4.1 billion in direct physical damage to buildings and agriculture, according to the World Bank.
The Colombo Consumer Price Index (CCPI), the official measure of inflation, rose to 195.8 in December from 191.7 a year earlier, marking a 2.1 percent increase.
“Inflation projections… (since) November 2025 indicate a gradual acceleration of inflation towards the target of five percent in the period ahead,” the central bank said.
Sri Lanka has secured a $206 million emergency loan from the International Monetary Fund (IMF) to meet part of the relief costs.
The country has been stabilising its fragile economy with the help of a $2.9 billion IMF bailout agreed in early 2023.
