Inflation Rises, But Sri Lanka's Economic Recovery Remains on Track

COLOMBO (News 1st); Sri Lanka's headline inflation accelerated to 7.3% in July 2026 from 6.8% in June, according to the latest Colombo Consumer Price Index (CCPI) data released by the Central Bank and the Department of Census and Statistics. Food inflation rose to 6.3% from 3.6%, while non-food inflation eased to 7.8% from 8.4%. 

However, Central Bank Governor Dr. Nandalal Weerasinghe stated on July 22 that the 100-basis-point policy rate increase implemented in May is already beginning to have the desired effect, with domestic demand, import growth and private sector credit expansion showing signs of moderation. He emphasized that inflationary pressures are expected to ease as the impact of policy tightening works its way through the economy.

The Governor also stressed that while inflation may remain above the Central Bank's 5% target in the near term due to one-off price adjustments and global factors, inflation expectations remain well anchored and inflation is projected to return to the 5% target over the medium term.

Supporting that assessment is the country's external position. Gross Official Reserves stood at approximately USD 6.45 billion at the end of June 2026 despite ongoing foreign debt servicing obligations, while the Governor expressed confidence that reserves remain on track to exceed USD 8 billion by the end of the year. Earlier in the year, reserves had risen to USD 7.3 billion by the end of February, reflecting a steady strengthening of external buffers compared to the crisis period.

Fiscal indicators have also shown noteworthy improvement. According to data reported by the Central Bank, Sri Lanka recorded a budget surplus of Rs. 197.3 billion during the first five months of 2026, compared to a deficit of Rs. 236.6 billion during the corresponding period of 2025. Government revenue increased by more than 30% during the period, strengthening the country's fiscal position.