Sri Lanka’s national prices fall 3.9% in February over electricity tariff cut

• February marks the sixth consecutive month of price declines since the current stretch of deflation set off back in September last year
• Monthly prices slipped 0.1 percent in February from 0.9 percent rise in January from a month ago

The National Consumer Price Index showed that consumer prices, measured nationally, declined by 3.9 percent in February 2025 from a year earlier. This represents a slight slowing of the 4.0 percent decline seen in January 2025, reflecting a recent deceleration in price declines as food prices have begun to rise.

February marked the sixth consecutive month of price declines since the current stretch of deflation set off back in September last year in response to repeatedly cut power and utilities prices.

The monthly prices slipped 0.1 percent in February from 0.9 percent rise in January from a month ago.

The Central Bank crushed the runaway inflation in 2022 by raising the interest rates by 900 basis points which included a bumper 700bps increase in the key policy rate in one meeting as they thought that the inflation which was becoming uncontrollable at the time was driven by rising demand.

But two years later they acknowledged they mistook what actually caused inflation back then and attributed much of the inflation in 2022 and most of 2023 to supply side constraints caused predominantly by the sharp rise in global oil prices caused by the Ukraine war and the supply chain snarls caused by the post pandemic economic resurgence.

In February 2025, much of the deflation was helped by the late January cut to electricity tariffs of which the full effects were seen in February.

However, the International Monetary Fund Staff Mission which was here recently balked at the average 20 percent cut to the electricity tariffs.

Meanwhile, food prices in February rose by 0.2 percent from a month ago as prices of coconuts, vegetables, green chilies, fresh fruits, coconut oil and salt rose. However, the prices of rice declined with big onions and fresh fish among others.

On a year-on-year basis however the prices of food declined by 1.1 percent.

The non-food prices declined the most by 0.3 percent from a month ago and by 6.0 percent from a year ago at a faster rate than 5.2 percent decline through January 2025.

This was mainly coming from the January electricity tariff cut as explained earlier which weighed down on the overall national price index for the month.

The Central Bank expects the current stretch of deflation to subside in a couple of more months before turning positive from the second half of this year and converge to its 5.0 percent medium term target.