Consumer inflation to remain below 5% through first quarter of 2025

• Prices rose by 2.4% in July from a year ago; accelerated from 1.7% through June
• Low base effects dissipating
• Still people and businesses grappling with price increases in last two years and taxes 

The Central Bank expressed its confidence about the ability to maintain inflation below its medium target of 5 percent through the first quarter next year, before seeing a temporary uptick in the prices towards the second half of 2025, before converging around the target level thereafter.

The Central Bank made these comments on Friday, at a technical discussion held with the media on the Central Bank’s third Monetary Policy Report published the day before, to make sense of its monetary policy actions in the recent past and more specifically the most recent one held in July.

The Central Bank, by its law passed in 2023 as part of a litany of conditions by the International Monetary Fund (IMF) to make the institution independent and thereby detach completely from the policy of the government, is required to publish biannual reports called ‘The Monetary Policy Report’, to inform the public about why the Central Bank did what it did in the last six months, in respect of the interest rates and other monetary policy tools to maintain price stability.

The third such report was unveiled last week but hardly anything new came out more than what the Central Bank has been saying in its one-in-two-months Monetary Policy announcements and the post-announcement media briefings, in an apparent indication that this report is nothing but a box-ticking exercise, as is mandated by the new law that got passed by the Central Bank itself.

Therefore, the Central Bank used the platform to double-down on its same talking points on inflation and growth expectations.  

The prices rose by 2.4 percent in July from a year ago, accelerating from 1.7 percent through June but the monthly prices of food, energy and electricity eased, according to the widely used Colombo Consumer Price index.
The low base effects are also dissipating but the Central Bank is confident the general price increases would remain below 5 percent.

Despite the inflation readings coming softer, the people and businesses are grappling with a manifold increase in prices in the last two years and also the repeatedly raised taxes by the government when the IMF was given the red-carpet invitation back in 2022, which also had the blessings of the post-April 2022 Central Bank.