COPF addresses: Inflation target and headline inflation mismatch

Sri Lanka’s inflation targets rely on the Household Income and Expenditure Survey (HIES) data from 2019, though the country’s spending patterns have weathered the economic impact of the Covid-19 pandemic and an economic crisis in 2022, Central Bank of Sri Lanka Deputy Governor C. Amarasekara informed the Committee of Public Finance (COPF) recently.

“The country is relying on the 2019 basket of goods. There is no household income and expenditure survey conducted after 2019, we are relying on 2019 [data], which is pre-Covid-19, pre-crisis,” Amarasekera said.  

Though Sri Lanka’s headline inflation entered into a positive territory in August of 2025, headline inflation continues to average 2.6% percentage points below the inflation target set by the CBSL. COPF Chairperson Harsha de Silva said that Sri Lanka has missed its inflation target for six consecutive quarters. 

“We are not able to meet the target of 5%. We are not likely to meet the target of 5% for the next however many quarters, because your short term expectation is maybe 3%. If the expectation is 3%, then if interest rates are 8.5%, still it is 5%+,” he said. 

CBSL Monetary Policy Board member Dushni Weerakoon explained that a lack of data has hampered the ability to project reliable targets. “We spent a day with the technical team at the Central Bank to try and understand what is behind this model. There is a problem of not even having data that will support the setting up of a model that is going to hit targets. In a situation where we do not have any kind of model or data, I think this is the best that we have.” 

CBSL Governor Dr. Nandalal Weerasinghe noted however that on the interest rate framework front, Sri Lanka continues to perform positively. “The economy’s growing right, credit is growing right, demand is growing right, demand is taking place at the right balance. I don’t see any problem with the current interest rate structure. There is an up-to-date interest rate structure, based on the demand side, that’s exactly what we see.  We can see clearly the indicators on the demand side are very much in line and consistent with our monetary policy stance and interest structure,” he noted.

Surce - The Morning