Key highlights:
- All major
indices (CCPI, NCPI, PPI, GDP Deflator) recorded steep increases in 2022.
- Inflation rates
began to moderate in 2023.
- By 2024 and
2025, inflation showed signs of stability
and even deflation in some sectors.
- NCPI
food inflation fell from 10.6% in
2023 to 2.1% in 2024.
- Non-food
inflation also dropped across various categories, with some showing negative rates (e.g., housing,
clothing).
- PPI
inflation declined sharply from 74% (2022)
to 0% (2024) and -1% (2025), indicating falling
production costs.
- After peaking at
47.5% in 2022, the GDP deflator dropped to 17% in 2023 and 3.8% in 2024, showing a broader
economic cooling.
1. Introduction
Inflation
is a sustained increase in the general price level of goods and services in an
economy over a period of time. It is typically measured as an annual percentage
change in a price index, most commonly the Consumer Price Index (CPI) or the
Producer Price Index (PPI). Inflation reflects a decline in the purchasing
power of money, meaning that over time, a given amount of currency buys fewer
goods and services.
From
a macroeconomic perspective, inflation is a key indicator of economic health
and is influenced by a complex interplay of factors including monetary policy,
fiscal policy, aggregate demand and supply dynamics, exchange rates, and
external shocks. Central banks, such as the Federal Reserve or the European
Central Bank, monitor inflation closely and use tools like interest rate
adjustments and open market operations to control it.
Measuring of Inflation in Sri Lanka
In Sri Lanka Consumer price indices such as the
Colombo Consumer Price Index (CCPI) and the National Consumer Price Index
(NCPI) will be used to measure the changes of consumer prices. In addition to
that, the Producer Price Index (PPI) are used to indicate inflation at producer
level. Further, the GDP Deflator will be the indicator to show overall inflation
of the country.
Colombo Consumer Price Index (CCPI) – Base year
2021
CCPI measures the changes in the general level of
consumer prices in the urban areas of Colombo districts. Base year of the
current CCPI is 2021 and it covers food and non-alcoholic beverages (28.24 %
weight) and nonfood categories (71.76 % weight). Nonfood category covers 11
sub-categories with different weightages. Following graph 1 shows the
weightages for each category in the basket.
National
Consumer Price Index (NCPI) – Base year 2021
National Consumer Price Index measures the general
level of consumer prices in Sri Lanka covering all nine provinces. The index
will be calculated and disseminated monthly. The NCPI (2001=100) is based on
Household Income and Expenditure Survey 2019. It covers 12 major groups
consists of 105 subgroups including total number of 485 items. Broadly, food
and non-alcoholic beverages represent 39.22% and non-food categories covers
60.78% in weight. Prices are collected from 3 centers in each district town for
each item in the basket. Following graph 2 shows the weightages for each
category in the basket.
Producer
Price Index (PPI)
Producer Price Index measures average change over
the time in the prices received by domestic producers of good and services. In
2015, PPI was introduced to Sri Lanka first time. Currently, the index covers 6
provinces of the country. The PPI reference was changed to 4th quarter
2018 in 2021. Main categories in the current PPI are agriculture (12%), manufacturing
(85%) and utility (3%).
GDP Deflator
The GDP deflator
(also called the GDP price deflator)
is a measure of the overall level of
prices in an economy. It reflects how much prices of goods and services
included in Gross Domestic Product
(GDP) have increased or decreased over a period of time.
GDP Deflator = (Nominal GDP / Real
GDP) × 100
- Nominal GDP is the value of
all goods and services produced at current prices (i.e., not adjusted for
inflation).
- Real GDP is the value of
all goods and services produced at constant prices (i.e., adjusted for
inflation).
2.Analysis
Movement
of Colombo Consumer Price Index
Colombo Consumer Price Index (CCPI)
rose suddenly from 129.2 in March 2022 to 189.3 in September 2022 showing
approximately 46% increase. Since then, CCPI increased gradually until February
2024 as shown in figure 3. The highest CCPI recorded in February 2024 and it
was 200.6. After that, the CCPI started to decline marginally, and it reduced to
193.7 in September 2025.
Following figure 4 elaborate the movement of
monthly CCPI from February 2022 to September 2025. As per the graph, monthly
inflation rates were high during the period of March to August 2022. Generally,
the variation of monthly inflation rate was very high and it has shown a
moderate in 2023 and 2024. In 2025, movement of inflation rate show a stable
condition and the monthly CCPI inflation rate in September 2025 recorded only a
0.2%.
The figure 5 compares the average Colombo Consumer
Price Index for all items from 2022 to 2025. It shows clearly that the average
CCPI from 2022 to 2023 has increased approximately by 17.3 percent. However,
the yearly average inflation rate in 2024 was 1.25% and until September 2025,
on average, 0.12% percent monthly inflation has shown.
Following figure 5 compares the different
categories of CCPI between September 2024 and September 2025. In comparison to
September 2024, inflation in all categories except following 3 categories has
increased slightly.
- · Housing, water, electricity, gas and other fuels
- · Alcoholic beverages, tobacco and narcotics
- · Transport
Movement of National Consumer Price Index
As
per the Department of Census and Statistics percentage change of monthly NCPI
for the month of August 2025 recorded -0.53 for all items, -0.55 for food and
non-alcoholic beverages, 0.02 for non-food categories. For the month of July
2025, figures for all items, food and
non-alcoholic beverages, and non-food categories were -0.19, -0.62 and 0.43
respectively.
Further
to that, following table 1 compares the annual average NCPI inflation between
2023 and 2024. It shows that annual average NCPI inflation in 2024 has fallen
down significantly in comparison to year 2023.
Movement of Producer Price Index (PPI)
Figure 7 shows the movement of monthly PPI for the
period from January 2019 to August 2025. Monthly average PPI inflation was 3.7%
in 2019 and 3.8% in 2020. PPI started to rise since beginning of 2020 due to
the impact of COVID-19 Pandemic. In 2021, ninthly average PPI inflation rose to
1.21% due to impact of global price level increase as a result of COVID-19
Pandemic. In contrary to the general movement of monthly average PPI, in 2022,
the monthly average PPI skyrocketed to 5.02%. However, monthly average PPI
inflation for 2023 and 2024 were 0.0% and -0.21% respectively. Further, until
August 2025, the monthly average PPI inflation shows a 0.21 %.
Annual PPI inflation for all categories was 6% for
2020 and 11% for 2021. It was skyrocketed to 74% in 2022 due to economic
crises. Annul PPI inflation for all categories for 2023 and 2024 were 12% and
0% respectively. Until, august 2025, the
reported PPI inflation for all categories was -1%. Figure 8 further elaborate
the movement of annual PPI inflation by sectors.
Following figure 9 shows the movement of GDP
deflator from 2017 to 2024. Although the GDP deflator in 2017 recorded 5.5%and
declined to 3.1% in 2020. However, the GDP deflator rose to 8% in 2021 and it
climbed to 47.5% in 2022. The GDP deflator declined sharply to 17% in 2023 and
it further declined to 3.8% in 2024.
3. Future
direction
The CCPI recorded 1.25% in 2024 and until September
2025, on average, monthly CCPI inflation recorded 0.12%. During 2024 and until
September of 2025, the monthly CCPI varied between -1.9% and 1.2%. When PPI
inflation is considered, it was -0.21% in 2024 and until august 2025, the
monthly average PPI inflation recorded 0.21%. Monthly PPI inflation varied
between -1.61% and 1.18. As shown in the
following figure 10, both PPI and CCPI inflation are in a slightly increasing,
converging and stabilizing trend.
