Earnings from exports increased in July 2022, while import expenditure declined for the fifth consecutive month, on a year-on-year basis. The notable decline in import expenditure in July 2022 reflected the impact of overall moderation of activity amidst forex liquidity strains in the banking system, while the policy measures to curtail non-urgent import expenditure also helped to contain import demand pressures. As a result, the trade deficit recorded a notable contraction in July 2022 over the year, thereby easing stresses in the domestic foreign exchange market. Workers’ remittances increased marginally in July 2022, compared to June 2022, and remained in excess of the trade deficit, thereby supporting the forex liquidity conditions under severe balance of payments pressures. Earnings from tourism recorded an increase in July 2022 (year-on-year) on the low base. Foreign investment in the government securities market and the Colombo Stock Exchange (CSE) recorded a marginal net inflow during July 2022. The Central Bank continued to provide forex liquidity to finance essential imports, exhausting the usable level of gross official reserves. Meanwhile, the weighted average spot exchange rate in the interbank market remained around Rs. 361 per US dollar during the month.

Headline inflation, as measured by the year-on-year (Y-o-Y) change in the Colombo Consumer Price Index (CCPI, 2013=100) increased to 64.3% in August 2022 from 60.8% in July 2022. This increase in Y-o-Y inflation was mainly driven by the monthly increases of both Food and Non-Food categories. Accordingly, Food inflation (Y-o-Y) increased to 93.7% in August 2022 from 90.9% in July 2022, while Non-Food inflation (Y-o-Y) increased to 50.2% in August 2022 from 46.5% in July 2022.