Inflation hits 13-month high as supply shocks disrupt price stability

The consumer inflation measured by Colombo Consumer Price Index (CCPI) continued its upward trajectory in May 2026, reaching a 13-month high and remaining above Central Bank's medium-term target.

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The CCPI based headline inflation accelerated to 5.5 percent year-on-year in May, up marginally from 5.4 percent recorded in April. This current inflationary environment stands in stark contrast to the deflationary period witnessed just a year prior, when the CCPI dipped to negative 0.7 percent in May 2025.

In response to these growing price pressures, the Monetary Policy Board of the Central Bank of Sri Lanka (CBSL) raised the Overnight Policy Rate (OPR) by 100 basis points to 8.75 percent on May 26. While the tightening measure was widely anticipated by the market, some economists argue that an earlier policy rate hike in March or April could have preempted the sharp breach of the 5.0 percent target. Critics suggest that an earlier intervention might have captured the inflationary momentum before the second-round effects of energy price adjustments fully trickled down into the broader economy.