Consumer prices in Sri Lanka, as measured by the National Consumer Price Index (NCPI), exhibited a softening trend in March. While the broader index showed a 2.5 percent increase from a year earlier, down from 5.1 percent in February, monthly measurements turned negative, indicating a decrease from February levels. This decline was primarily driven by a sharp cooling in non-food prices, which fell by 2.0 percent monthly compared to a 0.5 percent increase between January and February. Despite stable food prices on an annual basis, monthly food prices saw a consecutive decline by 2.1 percent, as better weather and supply conditions reversed sharp price gains seen earlier in the year. The overall softness in prices was supported by a stronger rupee against the dollar, appreciating by about 8.0 percent, and improved supply dynamics, although upward pressure from global oil prices and regional tensions pose potential threats to inflation expectations.

The moderation in inflation allowed the Central Bank to implement rate cuts in March, with the future trajectory largely dependent on the movement of global energy prices. Core prices, excluding volatile components such as food, energy, and transport, rose by 3.4 percent, up from 2.7 percent in February, reflecting underlying pricing pressures in the economy. However, concerns persist regarding potential inflationary impacts from escalating energy costs, as global oil prices have risen this year amidst rising tensions in the Middle East. Given Sri Lanka's status as a net energy importer, policymakers will closely monitor external developments to navigate the inflationary landscape and ensure stability in the domestic economy.

National consumer prices soften in March | Daily Mirror