Macroeconomic Forecast Sri Lanka

Headline inflation hit a 26-month low of 3.8% y-o-y in January, falling sharply from 4.9% in the previous month. Meanwhile, core inflation remained unchanged at 4.7% y-o-y. The current spate of disinflation continues to be on the back of falling food inflation, which hit -0.2% y-o-y in January, down from its peak in April 2011 of 14.3%. Indeed, non-food inflation saw an increase in the beginning of the year, with the figure rising from 7.0% y-o-y in December to 7.4%. The latest data poses downside risk on our 2012 year end consumer price inflation forecast of 4.1%.

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