Sri Lanka's inflation stays well below target despite signs of recovery

Sri Lanka’s inflation rose by 2.1 percent last year, remaining well below the central bank’s target of five percent, the monetary authority said on Thursday, while forecasting a gradual pickup in price pressures in 2026.

Although low inflation can benefit consumers, the central bank noted that inflation below target also reflects underlying economic weaknesses, including subdued consumer demand.

The island nation has been slowly recovering from its worst economic crisis in 2022, when it ran out of foreign exchange reserves to pay for essential imports such as food, fuel and medicines.

The recovery suffered a setback in November when a cyclone killed at least 643 people, left another 183 missing and affected more than 10 percent of the population. The World Bank estimates the storm caused $4.1 billion in direct damage to buildings and agriculture.

According to official data, the Colombo Consumer Price Index rose to 195.8 in December from 191.7 a year earlier, translating into an annual inflation rate of 2.1 percent.

The central bank said inflation projections since November 2025 point to a gradual acceleration toward the five percent target in the period ahead.

Sri Lanka has secured a $206 million emergency loan from the International Monetary Fund to help cover part of the cyclone-related relief costs and continues to stabilise its economy under a $2.9 billion IMF bailout agreed in early 2023.