Higher sales tax drives Sri Lanka inflation to 6.5% in January

The National Consumer Price Index (NCPI) captures broad retail price inflation and is released with a lag of 21 days every month.

Sri Lanka's consumer price inflation rate accelerated to 6.5 per cent in January year-on-year from 4.2 per cent in December, official data showed on Wednesday, driven by a higher sales tax needed to meet targets set under a $2.9 billion IMF programme.

The National Consumer Price Index (NCPI) captures broad retail price inflation and is released with a lag of 21 days every month.

Food prices rose 4.1 per cent on the year from 1.6 per cent in December, the Department of Census and Statistics said in a statement.

Prices for non-food items increased 8.5 per cent last month from 6.3 per cent in December.

Sri Lanka racked up record inflation that peaked at 70 per cent in September 2022 after its economy was pummelled by the worst financial crisis in decades, triggered by a plunge in foreign exchange reserves.

It increased its Value Added Tax (VAT) from 15 per cent to 18 per cent from the beginning of the year in an effort to meet government revenue targets set under a $2.9 billion International Monetary Fund (IMF) bailout, which was finalised last March and helped the island nation tackle inflation, rebuild reserves and stabilize its currency.

Food prices were also boosted by heavy rain reducing vegetable harvests in January.