Sri Lanka’s Colombo consumer price index falls 0.7% y/y in May

Sri Lanka’s Colombo Consumer Price Index fell 0.7% year-on-year in May after dropping 2% in April, the statistics department said on Friday, indicating deflation is easing.

The Colombo Consumer Price Index, a leading indicator for broader national prices, tracks inflation in Sri Lanka’s biggest city. Prices have been falling year on year since last September but analysts expect prices to start rising again soon.

“I don’t think this comes as a surprise. We were expecting it (the index) to turn positive in August but there is a possibility it might turn positive before that,” said Raynal Wickremeratne, co-head of research at Softlogic Stockbrokers.

Prices in the food category jumped to 5.2% in May from 1.3% year-on-year in April. In the non-food category, prices fell 3.3% this month year on year after declining 3.6% in April.

Sri Lanka, which was plunged into a financial crisis by a record shortage of dollars three years ago, has recovered strongly, posting 5% economic growth last year.

Sri Lanka’s consumer prices drop 0.8% in April year/year

The island nation’s inflation has fallen significantly over the last two years, supporting a gradual lowering of interest rates.

Sri Lanka’s national consumer price index fell 0.8% in April but inflation is expected to return and track closer to the central bank’s target of 5% towards the end of this year, the central bank said in a statement last month.

Taking advantage of low inflation, Sri Lanka’s central bank cut its policy rate by 25 basis points in a surprise move this month, aiming to foster stronger economic growth.