Sri Lanka’s 12-month inflation in the capital Colombo ease to 57.2 percent in December 2022 from 61 percent in November as prices started to stabilize after interest rates were allowed to go up and the exchange rate was pegged around 360 to the US dollar.
The widely watched Colombo Consumer Price Index fell absolutely 0.2 percent to 243.2 points in November after falling 0.5 percent in the November.
Food prices fell 9.3 percent after falling 1.5 percent a month earlier. The sub-index containing gas fell 1.1 percent.
But clothing, footwear and recreation prices have continued to go up, as relative prices adjusted to the steep fall in the currency after two years of money printing to suppress rates.
Sri Lanka’s central bank hiked policy rates to 15.5 percent in April and pulled back on longer term money printing, allowing market rates to go to around 30 percent.
The exchange rater is pegged around 363 rupees with a surrender rule where banks are forced to sell dollars to the central bank for new liquidity.
The ongoing currency and inflation crisis is the worst in the history of the central bank.
Sri Lanka’s Latin America style central bank was set up in 1950 giving powers to the country’s macro-economists the power to mis-target rates, create currency crisis and high inflation.