From returning to positive territory after months of deflation till mid-2025 and consistently struggling to meet the Central Bank’s target of 5% until earlier this year, Inflation has been picking up and reached 8% by August-26, marking a dramatic shift over the past 12+ months. With global oil prices swinging back and forth with no signs of stability and climate factors also coming into the picture, how these variables alongside the rest will combine to define the inflation pathway forward remains a key focus area among policymakers, investors, businesses and individuals.
Prior to the breakout of the Iran war, our expectation was for inflation to significantly underperform CBSL’s 5% target due to structural reasons. An appreciating currency together with low energy prices were the main drivers for us back then alongside currency and commodity risks that we highlighted. The very fact that two months later, Sri Lanka had to face the BIGGEST oil shock in history to move into that negative scenario tells how structurally low inflation was.
In this month’s Focus, we explore how the various subcomponents within the CCPI have moved since the war and look for any particular drivers we see that is behind the recent pick-up in inflation. Furthermore, we provide our broad outlook on global oil prices and tie it into what we think the inflation pathway will look like by the end of the year by presenting multiple scenarios and our outlook across all those.
Our clients would have already received a detailed report to their emails on this; alongside the numbers we associate with each of these varied scenarios. The full report has also been accessible on our Athena reports platform since the 25th of August 2026. If you still haven’t had a chance to read through it, click here! If you are yet to be a subscriber, please do get in touch with us for a trial subscription to our reports at clientconnect@frontiergroup.info.