Sri Lanka's consumer price inflation surged to 8.0 percent in August, driven primarily by rising food costs linked to fuel price increases, while export performance remained under pressure and the rupee strengthened marginally against the dollar.
Sri Lanka's inflation reached its highest level in more than three years during August 2026, climbing to 8.0 percent from 7.3 percent the previous month and exceeding the Central Bank's upper target of 7 percent for a second consecutive month. The sharp uptick was predominantly fueled by food inflation, which accelerated year-on-year to 8.5 percent in August, its strongest reading since May 2023. The government's decision to raise fuel prices by approximately 50 percent following Middle East-related supply disruptions and elevated global oil prices contributed substantially to the inflationary pressure. Non-food inflation also increased to 7.7 percent, while core inflation climbed to 5.5 percent from 4.4 percent previously.
On the currency front, the Sri Lankan rupee closed modestly stronger at 328.10/30 to the US dollar on Monday, compared to 327.98/328.04 on Friday. Meanwhile, selected government bond yields edged lower across various tenors, though much of the yield curve remained consolidative. The Central Bank maintained its Overnight Policy Rate unchanged at its most recent monetary policy meeting. Central Bank officials have projected inflation may ease toward 5 percent by year-end if global crude oil prices remain near US$80 per barrel.
Export performance presented a mixed picture in July 2026. Merchandise exports declined 1.3 percent year-on-year to 1,285.31 million dollars, with particular weakness in apparel shipments, which fell 8.82 percent, and tea exports, which contracted 17.22 percent. According to the Export Development Board, geopolitical tensions contributed to reduced demand, with Middle East tea markets declining 47.93 percent and apparel shipments to major Western markets weakening. However, services exports demonstrated stronger momentum, rising 20.07 percent to 351.92 million dollars, with transport and logistics growing 40.02 percent.
In broader economic developments, Sri Lanka launched comprehensive tourism planning initiatives with World Bank support, aiming to shift focus from visitor volume to higher spending per tourist. The Colombo Stock Exchange finished the trading session marginally higher, with the All Share Price Index advancing 0.11 percent.