Sri Lanka’s inflation rate fell to minus 0.5 per cent in September 2024, down from 0.5 per cent in August, marking the first deflation in nearly four decades.
According to the data released by Sri Lanka’s Department of Census and Statistics, food items also witnessed a deflation as the basket recorded minus 0.3 per cent. The island nation is in the midst of an economic crisis which was at its peak in 2022 with inflation going as high as 70 per cent. Tight monetary policy and other government measures such as import bans on non-essential commodities helped bring down inflation.
The Governor of the Central Bank of Sri Lanka Nandalal Weerasinghe has maintained that the target for inflation is between 3 and 5 per cent. The last time Sri Lanka experienced deflation was in October 1985, when inflation hit minus 2.1 per cent.
Deflation is when prices decrease over time. It stands in contrast to inflation, which refers to when prices rise. In the current circumstances, the island’s economy is seeing a deflationary trend following high inflation in the backdrop of debt. In traditional economics, such rapid deflation can be associated with a short-term contraction of economic activity which is not a positive development for Sri Lanka.
