CB expects annual average inflation to settle at as high as 22% by end-2022

• Sri Lankans already grappling with highest ever consumer prices in history

Sri Lanka’s annual average inflation is estimated to remain at a shockingly high level of 22 percent through the end 2022 indicating that the economic crisis and its reverberation would grind on for years to come from where it is today.

Further, the near term projections also signal that the current demand destruction policies such as the tighter monetary policy and the impending tight fiscal policy which together form tougher austerity measures in the style of what the people in Greece went through, alongside the much needed structural reforms would continue for years to come.

According to the near term macroeconomic projections published by the Central Bank about a week ago, Sri Lanka’s annual average inflation would settle at 22 percent by 2022 end.

This should send chills among the people, as Sri Lankans who are already battered by income squeeze and commodities shortages, as they will have to deal with the highest levels of price pressures Sri Lanka has ever seen.

Sri Lanka’s consumer prices measured by Colombo Consumer Price Index hit an all-time high of 29.8 percent in the twelve months to April 2022 as prices from everyday commodities to everything went through the roof since the rupee was floated on March 7.

The previous highest CCPI was 29.8 percent recorded in June 2008. From 2009 to November 2021, Sri Lanka managed to consistently maintain the inflation at single digit levels.  The inflation projection for 2022 is nearly four times the desired inflation trajectory of between 4 to 6 percent under the Central Bank’s inflation targeting framework.

However, the Central Bank said it was unable to provide a medium term outlook due to extreme uncertainty prevailing at present. 

“Projections of the Medium Term Macroeconomic Framework require adequate information on the impact of recently announced policy changes (in early April 2022), including the commencement of negotiations for an IMF programme, forthcoming restructuring of external debt obligations, efforts towards strengthening fiscal consolidation, along with the introduction of various structural reforms,” the Central Bank said.