Headline inflation, as measured by the year-on-year (Y-o-Y) change in the Colombo Consumer Price Index (CCPI, 2021=100) decreased to 25.2% in May 2023 from 35.3% in April 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 April 2023.
The Food inflation (Y-o-Y) decreased to 21.5% in May 2023 from 30.6% in April 2023, while the Non-Food inflation (Y-o-Y) decreased to 27.0% in May 2023 from 37.6% in April 2023. Monthly change of CCPI recorded at -0.02% in May 2023. This small monthly change was due to the netting off of price decreases observed in the items of Non-Food category, which was -0.56% by the price increases observed in the Food category, which was 0.53%. The core inflation (Y-o-Y), which reflects the underlying inflation in the economy, decreased to 20.3% in May 2023 from 27.8% in April 2023.
Looking ahead, based on the available information, the declining trend of inflation is expected to continue, bringing down inflation towards single digit levels in Q3 2023, faster-than-projected earlier. This disinflation process is supported by the lagged impact of tight monetary and fiscal policies, strengthening of the Sri Lanka rupee, reduction in fuel and gas prices, normalisation of food prices and the favourable impact of statistical base effect.