Headline inflation, as measured by the year-on-year (Y-o-Y) change in the Colombo Consumer Price Index (CCPI, 2021=100) decreased to 6.3% in July 2023 from 12.0% in June 2023. The decline in the headline inflation is broadly in line with the disinflation path envisaged by the Central Bank of Sri Lanka (CBSL) in July 2023.
The Food category, nearly after four years, recorded a deflation (Y-o-Y) of 1.4% in July 2023 compared to the inflation of 4.1% observed in June 2023. Meanwhile, the Non-Food inflation (Y-o-Y) decreased further to 10.5% in July 2023 from 16.2% in June 2023. Monthly change of CCPI recorded at -1.12% in July 2023 due to the combined effect of price decreases of -1.13% observed in the items of Non-Food category and the marginal price increases of 0.01% recorded in the items of Food category. The core inflation (Y-o-Y), which reflects the underlying inflation in the economy, decreased to 6.1% in July 2023 from 9.8% in June 2023.
Looking ahead, based on the available information, inflation is expected to moderate further and stabilise around the targeted level over the medium term. This disinflation process is supported by the lagged impact of tight monetary and fiscal policies, improvements on the supply side, the softening of energy and food inflation, and the favourable base effect.