Inflation Hits 60.8% in Sri Lanka as Economic Crisis Continues
Inflation in Sri Lanka rose to a new record high of 60.8% in July as the island country’s economy continues to deteriorate. The new data marks a sharp rise from a 54.6% inflation in June and comes just several days after the recent presidential election that resulted in a leadership change.
Food Inflation Up at Nearly 91%
Sri Lanka’s Census and Statistics Department released a new Colombo Consumer Price Index (CCPI) print that showed that inflation hit a new record high of 60.8% this month, compared to a 54.6% inflation that was reported in June. Food inflation skyrocketed to 90.9% in July as the years-long economic crisis in the country continues to deteriorate despite the recent leadership change.
The island country has been dealing with a severe economic crisis since 2019 that led to red-hot inflation levels, medical supplies deficit, and sharp surges in prices of essential commodities. More specifically, it is the worst economic crisis Sri Lanka has experienced in 74 years.
The crisis has reportedly emerged due to several factors including tax cuts, money creation, 2019 Easter bombings, as well as the coronavirus outbreak in 2020. The country, which has almost 22 million people, has been set for a sovereign default as its foreign exchange reserves of $1.9 billion as of March this year were insufficient to repay its $4 billion foreign debt for this year.
Sri Lanka’s government was expected to make its International Sovereign Bond repayment of $1 billion this month. According to a previous Bloomberg report, the government had a total of $8.6 billion this year in local and foreign debt.
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Massive Challenge for New President
On July 20, Sri Lanka elected a new president, Ranil Wickremesinghe, and Dinesh Gunawardena as the country’s new prime minister following a peaceful leadership change. Wickremesinghe replaced former president Gotabaya Rajapaksa who resigned on July 14.
The election marked the first time in the country’s history that a new president was elected after a Parliament vote. Before becoming the president, Wickremesinghe retained the position of prime minister six times.
In addition to Sri Lanka, the U.S. economy and the rest of the world also grapple with 4-decade high inflation that fueled the prices of food and gas to record highs. Earlier this week, the Federal Reserve announced another 75 basis points interest rate hike to stabilize prices. The U.S. Bureau of Economic Analysis also reported Thursday that the U.S. economy shrank for a second consecutive quarter, adding to recession fears.
Do you think Sri Lanka’s new leadership will help the country overcome its ongoing crisis? Let us know in the comments below.