Inflation skyrockets in Sri Lanka; Food prices at record high

Sri Lanka’s benchmark inflation rate, as measured by the National Consumer Price Index, accelerated to 14 percent in December 2021 from 11.1 percent, the state statistics office said on Saturday amid a severe foreign exchange crisis.

This was the second straight month after inflation recorded double-digit growth in November for the first time since the index was created from 2014.

According to the National Consumer Price Index, food prices rose 6.3 percent in December, while non-food prices rose 1.3 percent.

“The food sub-index is up 21.5 percent in 12 months to December 2021, while non-food is also up 7.6 percent over the months,” the statistics office said in a statement.

Immediately after the outbreak of the COVID-19 pandemic in 2020, the government imposed import restrictions to try to stem the dwindling of foreign exchange reserves.

Sri Lanka is currently relying on Indian economic aid by providing credit lines to finance fuel and food imports.

The island state is currently facing a serious currency crisis with falling reserves.

The country is struggling with shortages of almost all necessities due to a lack of dollars to pay for imports.

In addition, power outages are imposed at peak times because the state energy agency cannot obtain fuel to run turbines.

The State Fuel Board has halted oil shipments as the Electricity Board has high unpaid bills. The only refinery recently closed because it couldn’t afford the dollars to import crude oil.

Earlier this month, the Indian government announced a billion-dollar aid package in addition to other balance-of-payments support for Sri Lanka.

The $1 billion credit facility will be used to stave off a food crisis while allowing items and medicines to be imported. In addition, there are 500 million US dollars for the import of fuel from India.

The Sri Lankan government is also in talks with China to overcome the current financial crisis. During Chinese Foreign Minister Wang Yi’s visit to Colombo earlier this month, President Gotabaya Rajapaksa asked for Beijing’s assistance in relieving his country’s deepening foreign exchange crisis and mounting external debt and said it would do its best to help Colombo.

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