MONETABRIEF – Sri Lanka's housing construction sector has been hit by the currency collapse and high inflation, sector workers said as macro-economists celebrated the return to high inflation with the central bank reaching is controversial target.
The rupee was busted in from 300 to 330 in over the past year, with the currency debased from 309 to 330 plus levels in the second.
Busted Rupee
In July and August 2026, the central bank aggressively prevented appreciation amplifying the effects of a Middle East war not only on fuel but all goods and foods.
Supun Abeysekera, General Secretary of the National Construction Workers Society, said prices of cement had risen by 300 rupees to 2,200 rupees for a 50 bag kilogram in recent months.
"PVC pipes and wires and switches have also gone up," Abeysekera told reporters, displaying a cement block.
"Aluminium prices have gone up three time. Sand and stone have gone up."
A concrete slab that used 200 cement bags used to cost around a million rupees.
"Now it has gone up to 12.5 million rupees."
He said the sector was in trouble and livelihoods of 1.5 million workers was under threat. Sri Lanka's central bank, especially after 2015 has steeply depreciated the currency under flexible inflation targeting, repeatedly reflating the credit system claiming historical inflation was low, and triggering external crises.
Firms, Politicians Blamed, Not Macro-economists
Abeysekera blamed the companies for raising prices and called on the government to take action.
"Do not squeeze our necks by raising prices by like pinching (in step increments)," Abeysekera said.
"We also call on the Minister to look at this."
Most people do not know that inflation is pushed up the rupee depreciated to satisfy the inflation bias of an independent central bank and a democratically elected government is essentially helpless.
The 7 percent inflation target has been extended for a further three years with the backing of the International Monetary Fund, which also gave technical assistance for a single policy rate after the default and potential output targeting before.
Deterioration of Monetary Knowledge
There has been a global deterioration of monetary knowledge that is bringing people to the streets with central banks running floor systems (single policy rates0 with excess liquidity, which amplify any shocks, abandoning corridor systems.
The macro-economists have driven millions out of the country to currency board regimes in the Middle East by destroying whatever savings they collect with depreciation and making it impossible to build a house or buy a vehicle, especially after the IMF's Second Amendment to its articles.
Sri Lanka – then Ceylon – was an outward remitting country that imported labour under under currency board regimes when the central bank was set up.
It created the first currency crisis from 1952, though with less deadly operating framework that the current one involving inflation targeting without a clean float, setting an export-oriented nation on a path of import duty surcharges, exchange controls and import substitution.
Meanwhile Abeysekera said the construction industry was also facing labour shortages as many skilled were leaving the country including to Romania.
Romania's central bank uses a scarce reserve regime.
Western Inflationary Fashions vs Non-Inflationary Growth
In the early 1980s when Sri Lanka started on a path of high inflation after the IMF's Second Amendment to its articles then President J R Jayewardene called Singpore's economic architect Goh Keng Swee to help.
Goh had rejected macro-economics and was a classical economist who wanted non-inflationary growth not high inflation like Sri Lanka's central bank.
He told President Jayewardene to watch inflation index, exchange rate of the rupee, and the prices of construction materials as well as the central banks Treasury bills stock.
"Once inflationary pressures are brought under control, you will be able to expand the economy in a long-term non-inflationary growth process," Goh told JR. Sri Lanka rejected the advice from Singapore and instead went on the monetary debasement path (competitive exchange rates of the Washington Consensus) which has come back as the depreciation biased flexible exchange rate.
In small open economies macro-economists can best trigger monetary instability and political unrest with currency debasement.
Path of Non-inflationary Growth
Goh later said in a speech why Singapore did take the central bank path.
"First, to inform the financial world that our objective was to maintain a strong convertible Singaporean Dollar. This remains the best protection against inflation.
"The second purpose was to inform our citizens that if they wanted more and better services, they must pay for these through taxes and fees. There is no free lunch here."
"Third, we wanted to indicate to academics, both local and foreign; that what is fashionable in the West is not necessarily good for Singapore.
"A perceptive mind is needed to distinguish the peripheral form the fundamental, transient fads from permanent values."
Ironically the currency collapse in 2026 was engineered by dishonoring notes the central bank had created by monetizing the balance of payments surpluses, using dollars including these sent by remittances earners themselves as people were taxed to a budget surplus. (Colombo/Nov10/2026)