Sri Lanka has experienced its first deflation in 39 years, with consumer prices declining by 0.5% in September, according to data released on Monday. The Census and Statistics Department reported that both food and non-food prices contributed to this drop, contrasting with the 0.5% inflation rate recorded in August. The last occurrence of deflation in Sri Lanka was in October 1985, when the rate reached negative 2.1%.
The country has been grappling with a significant economic crisis, which peaked two years ago when inflation soared to 69.8%. This crisis resulted in severe shortages of essential goods such as food, fuel, and medicines, prompting widespread protests. The unrest ultimately led to the resignation of then-President Gotabaya Rajapaksa, who fled the country in July 2022.
Following this upheaval, Ranil Wickremesinghe assumed the presidency and took steps to stabilize the economy. A critical aspect of his strategy was securing a $2.9 billion bailout from the International Monetary Fund (IMF). To address the economic challenges, Wickremesinghe implemented strict austerity measures, including tax increases and price hikes, aiming to restore financial stability.
However, in the recent presidential election, Wickremesinghe lost his position to Anura Kumara Dissanayake. Dissanayake has pledged to uphold the IMF program while also indicating a desire to relax some of the austerity measures imposed by his predecessor.
The emergence of deflation, while a rare event for the country, signifies a potential shift towards improved price stability after years of economic turmoil. Nevertheless, the long-term impact of Dissanayake’s policies on economic recovery remains uncertain, and many are watching closely to see how his administration navigates the challenges ahead in revitalizing the economy.
