Sri Lanka has emerged from one of the most turbulent economic periods in its modern history. Inflation that once surged past 70 % in 2022 has slowed sharply, and the rupee has stabilised. Yet many families still feel the pinch because the price level that spiked during the crisis has not fallen.
This article explores how the cost of living has evolved, why prices remain stubbornly high, and what practical steps households can take to safeguard their finances.
From Crisis to Stability
Two years ago Sri Lanka was mired in an unprecedented economic collapse. Foreign reserves were drained, fuel queues stretched for kilometres, and basic goods became scarce. The surge in consumer prices especially for food and energy eroded wages and savings.
By mid-2025, however, the picture looks different. Colombo’s official consumer price index shows year-on-year inflation hovering between 4 % and 5 %. In some recent months the rate has dipped close to zero. This does not mean that goods are suddenly cheaper than before the crisis. It means that prices are no longer rising as quickly. The elevated cost base set during the inflation spike remains.
Why Inflation Fell
Several forces helped to bring inflation down.
- IMF-backed reforms and debt restructuring.
The government secured an Extended Fund Facility from the International Monetary Fund and renegotiated external debt. These moves restored confidence in the rupee, which has settled near LKR 300 to the US dollar. A stronger currency reduces the local price of imported goods such as fuel, wheat and machinery.
- Lower global energy prices.
Oil and coal prices that spiked in 2022 eased through 2023 and 2024. Cheaper fuel reduced transport and electricity costs across the economy.
- Tight monetary policy.
The Central Bank raised policy rates aggressively during the crisis, making credit expensive and cooling demand. As inflation retreated, rates were cut gradually, but the initial squeeze helped to break the price surge.
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Why Life Still Feels Expensive
Even with inflation back in single digits, households continue to struggle. The reason is simple: the crisis permanently lifted the general price level. A bag of rice that cost LKR 100 in 2021 might have doubled or tripled in 2022 and has not returned to its old price.
Wages have not caught up. Many employees received only modest salary increases while prices were soaring. Real purchasing power the goods and services that a household can actually buy remains well below pre-crisis levels. For many, the cost of electricity, fuel and basic foods is still a larger share of monthly income than before.
How to Protect Your Cost of Living
Track your expenses.
Start with a clear picture of what you spend. Free budgeting apps or a simple spreadsheet can reveal hidden leaks unnecessary subscriptions or impulse purchases that add up over time.
Build an emergency fund.
Aim for savings that cover at least three months of essential expenses. Even modest monthly contributions build resilience against future shocks, such as sudden medical bills or a jump in fuel prices.
Use available social-safety programmes.
Schemes like Aswesuma provide targeted cash transfers for lower-income households. Check eligibility criteria and register promptly when applications open.
Lock in returns on savings.
Fixed-rate Treasury bills or fixed deposits can protect cash from a sudden return of higher inflation. Compare rates among banks and non-bank finance companies and balance them with liquidity needs.
Diversify income.
Small home-based businesses, part-time work or freelance opportunities can buffer against wage stagnation. Remittances from relatives working abroad remain an important lifeline for many families.
Adopt energy-saving habits.
Simple steps switching to LED lighting, improving home insulation, car-pooling or using public transport reduce exposure to volatile energy costs.
The Role of Digital Payments
The rapid spread of mobile wallets and QR-based payment systems has changed how people manage money. Platforms such as GovPay and commercial bank apps allow real-time bill payments and easier tracking of transactions. For households, these tools help to avoid late-payment fees and give a clearer view of monthly outflows. They also encourage savings by showing spending patterns in detail.
Looking Ahead
Economists expect consumer price growth to stay in the mid-single digits through 2025 provided fiscal discipline holds and external conditions remain stable. Debt restructuring deals with international creditors are key to maintaining investor confidence and keeping the rupee steady.
However, risks remain. Global oil prices could spike if geopolitical tensions flare. A sharp slowdown in remittances or exports would strain foreign reserves and pressure the currency. Any of these shocks could reignite price rises.
Households cannot control these macro forces, but they can control their readiness. Building buffers and adopting careful spending habits now provides protection if another wave of inflation hits.
Key Takeaways
Sri Lanka has moved from the chaos of 2022 to a more stable footing. Inflation is low, but the crisis left a legacy of high prices and reduced purchasing power. Managing household budgets requires vigilance and planning: track spending, save consistently, and use digital tools to stay informed. Stability at the national level is important, but personal financial discipline is the best defence against future uncertainty.
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