MONETABRIEF – Sri Lanka's inflation was 8.0 percent in the 12-months to September 2026, data from the state statistics office showed, continuing trend seen since the collapse of the currency after March 2026.
Sri Lanka inflation which soared after the last currency collapse in March 2022, stopped in September after deflationary policy of the central bank showed up as a balance of payments surplus, ending forex shortages.
Sri Lanka's inflation was lower than the US for around two years, amid monetary stability.
In early 2025, the International Monetary Fund program lifted a requirement for the central bank to run aggressive deflationary policy (QPC on NCG was no longer a falling ceiling), exposing the country to the central bank's inflationism.
Its observed depreciation bias, that led to social unrest, internal strife and high nominal interest in the 1980s, also re-emerged after the falling QPC was lifted, which analysts have described as rupee ravishment.
The rupee collapsed after oil prices went up, exposing the weaknesses in the operating framework and the room it has to trigger monetary instability under the cover of a 5 percent inflation target.
The 5 percent inflation target which it demanded from the government, has also exposed its inflation bias and shattered the narrative that monetary instability comes from the budget deficit.
When the rupee collapsed and inflation soared, the budget was in surplus, showing that there was neither de jure nor de facto fiscal dominance.
Instead, the agency is escaping accountability pointing to 'external shocks' and current account deficits.
Meanwhile currencies in the war zone such as Dubai, Qatar and Saudi Arabia, which do not have policy rate are rock solid like the Ceylon rupee was during World War II before the central bank.
The policy rate was also raised after the horse bolted with the rupee collapsing.
The central bank said inflation would be in the high single digits till the first quarter of 2017. However there is no accountability for the central bank for missing its controversially high 5-7 percent target under which the country defaulted.
Instead the high inflation target is on track to be continued for another three years, when debt repayments are also picking up. (Colombo/Sept30/2026)