Sri Lanka's construction sector expanded in July while inflation reached an over three-year high of 8.0 percent in August, driven primarily by food price increases and government fuel price adjustments.
Sri Lanka's construction sector demonstrated robust growth in July 2026, with the Purchasing Managers Index reaching 61.4, reflecting sustained demand despite persistent supply challenges. The central bank noted that new orders expanded to 57.1 from 54.3 in the previous month, supported by a steady pipeline of projects. However, the sector continues to face headwinds, including limited bitumen availability and skilled labour shortages that constrained hiring, though the Employment Index did strengthen to 61.8.
Inflation pressures intensified during the same period, with the Colombo Consumer Price Index climbing to 8.0 percent in August from 7.3 percent in July, marking its highest level in over three years and exceeding the Central Bank's 7 percent target ceiling. Food inflation surged to 8.5 percent year-on-year, the highest since May 2023, driven significantly by price increases in vegetables and fruits. The government's decision to raise fuel prices by nearly 50 percent following Middle East-related supply disruptions and elevated global oil prices contributed materially to the broader inflation spike.
Other economic indicators presented a mixed picture. Services exports rose 20.07 percent year-on-year in July to reach 351.92 million dollars, with transport and logistics growing 40.02 percent. The Colombo Stock Exchange closed modestly higher, with the ASPI gaining 0.11 percent. Meanwhile, the Sri Lankan rupee weakened to 328.10/30 against the US dollar from 327.98/328.04 on Friday, while bond yields declined on selected tenors.
Government efforts to diversify the economy continued, with high-level discussions held to develop the mineral sector under the National Mineral Policy 2026. Officials emphasised the need to transition from exporting raw materials to developing domestic processing capabilities, though critics note past initiatives have been hindered by policy inconsistencies and regulatory weaknesses. The World Bank simultaneously supported tourism planning consultancy with a one million dollar grant, focusing on increasing visitor spending rather than visitor numbers.