Sri Lanka’s latest inflation figures will undoubtedly be welcomed by policymakers. After the extraordinary price shocks that accompanied the economic crisis of 2022 and the painful adjustment period that followed, the country has entered what economists describe as a period of relative price stability.
The Central Bank’s tight monetary policy, together with fiscal reforms implemented under the IMF-supported programme, appears to have succeeded in bringing inflation under control.
Yet outside the corridors of the Central Bank, many Sri Lankans are asking a very different question:
If inflation is so low, why does everything still feel so expensive?
The answer lies in the important distinction between inflation and the cost of living. Inflation measures the rate at which prices are increasing. It does not mean that prices have fallen back to previous levels. Rather, it simply means that prices are rising more slowly than they were before.
For households, this distinction is critical.
A family whose monthly grocery bill almost doubled during the economic crisis does not experience immediate relief simply because inflation has slowed. The higher price level remains firmly in place.
Food, transport, education, healthcare, insurance and utility costs continue to absorb a significant share of household income. For many families, wages and salaries have not increased sufficiently to restore the purchasing power lost over the past four years.
The middle class arguably feels this burden most acutely. While the poorest households continue to receive targeted assistance through programmes such as Aswesuma, many middle-income earners find themselves caught between higher taxation, increased loan repayments and living costs that remain stubbornly elevated.
As a result, their standard of living has changed in ways that official inflation statistics cannot fully capture.
