The much talked about recent VAT increase, electricity tariff revision and increase in food prices have not had a negative impact on inflation and it was curtailed at around 5%, Central Bank (CB) Governor Dr. Nandalal Weerasinghe said on Thursday.
He said that inflation is expected to remain in the 4-5% range in the next six months as well.
Inflation for the first two months of 2024 indicates that the impact of the Value Added Tax (VAT) amendments (effected in January 2024), on inflation may not be as large as initially envisaged due to the recent downward revision of the electricity tariff and the moderation in food prices.
Although food inflation accelerated on a year-on-year basis in February 2024, a month-on-month deflation was recorded, reflecting the easing of food prices.
“However, if there is a sharp increase in global fuel prices it may increase inflation as it will have a negative impact on transport and electricity bills,” he said. Dr. Weerasinghe said that the economy had made a steady comeback to positive territory especially in the last two quarters of 2023 and this is much better than was expected as the country was in a steep economic recession resulting in a minus growth rate.
“Favourable growth outcomes recorded in the second half of the year helped limit the overall contraction of the economy to 2.3% in 2023, compared to the contraction of 7.3% recorded in 2022. “This healthy economic growth momentum is expected to continue in the upcoming quarters as well,” he said.
