Sri Lanka’s inflation rate rose further in June, reaching 6.8%, moving above the Central Bank’s 5% target for the third consecutive month and increasing concerns over the rising cost of living. Consumer prices had already increased by 5.4% in April and 5.5% in May, marking a significant shift from the low inflation levels seen earlier this year.

The latest inflation rise comes after the Central Bank increased interest rates by 100 basis points in May, its first rate hike since March 2023. The move has pushed up borrowing costs for households and businesses, creating concerns about whether high lending rates will continue for a longer period.

However, the International Monetary Fund (IMF) said it is too early to determine whether the latest inflation increase is temporary or the beginning of a longer-term trend. IMF Mission Chief for Sri Lanka, Evan Papageorgiou, said inflation needs to be assessed over a broader period before making conclusions.

The IMF said Sri Lanka’s inflation performance will continue to be monitored under the Central Bank’s target framework, and any deviation from the target will be reviewed carefully. The renewed inflation pressure could affect household purchasing power and slow the recovery of families and businesses already affected by the economic crisis.

The IMF delegation, led by Evan Papageorgiou, visited Colombo from June 24 to 30, and Sri Lanka’s progress under the IMF-supported Extended Fund Facility (EFF) programme is expected to be formally reviewed during the Seventh Review later this year.