Inflation declined steadily throughout 2024 and eventually reached deflationary levels towards the latter part of the year according to the Central Bank Policy Agenda for 2025 and Beyond unveiled on Wednesday.
Addressing the gathering Governor of the Central Bank Dr. Nandalal Weerasinghe said there was a temporary acceleration in headline inflation in early 2024 due to the increase in Value Added Tax (VAT) and the removal of VAT exemptions from several items in the consumer basket.
However, he said inflation decelerated thereafter, reaching levels below the target of 5%, driven by the higher-than-predicted downward revisions to the energy prices, stronger currency as well as the decline in food prices. Consequently, in September 2024, headline inflation reached deflationary levels for the first time in nine years.
Meanwhile, core inflation, which mainly reflects the demand pressures in the economy, also reached lower positive levels.
With the notable deceleration of headline inflation and subsequent deflation, the inflation target was breached from the lower margin for two consecutive quarters in the second and third quarters of 2024, Dr. Weerasinghe said adding that such inflation target-miss continued in the final quarter of 2024 as well.
Accordingly, as agreed under the Monetary Policy Framework Agreement (MPFA), the Central Bank submitted a report to the Minister of Finance to be submitted to Parliament.
The report includes the reasons for the deviation of inflation from the target, the remedial actions taken, and an estimate of the period within which the inflation btarget could be achieved. This report will also be made available to the public, marking a significant milestone in further enhancing the Central Bank’s accountability to the Parliament and the public.
