📉 Sri Lanka's 🇱🇰 inflation/deflation, base years, and goods baskets

⭕ In August 2024, Sri Lanka recorded a deflation of 0.5% in August 2024 Deflation occurs when the set of goods in a basket, as defined by the Department of Statistics, becomes cheaper compared to its value in the previous year.

⭕ Sri Lanka had previously experienced deflation in the years 1985, 1995, and 2015.

⭕ In 2017, the government changed the base year for inflation calculations to 2013 from 2006/2007 and updated the food basket to reflect the 2013 prices. This adjustment altered the recorded deflation of 0.3% in September 2015 under the old base year to 1.3% inflation under the new basket.

⭕ Despite this change, the Department of Census and Statistics (DCS) still considers the -0.3% deflation based on the 2006/2007 base year as the official inflation figure for 2015.

⭕ The DCS regularly updates the base year and adjusts the basket of goods to better reflect the changing spending patterns of the population. For instance, telecommunications fees are now part of the basket, whereas they were not included in the 2006/07 basket.

⭕ The last rebasing in 2023, with 2021 as the base year (100), was considered controversial. Due to the economic crisis, people's spending habits changed drastically as they were unable to maintain their previous standards of living because of high prices. The DCS adjusted the basket to a more conservative one, which ultimately lowered the inflation figures compared to those calculated using the 2013 base year values.

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