Sri Lanka’s National Consumer Price Index (NCPI) rose to a new high of 73.7 per cent in September from a year earlier, quickening from 70.2 per cent in August, the statistics department said.

Annual food price inflation picked up to 85.8 per cent from 84.6 per cent in August, while prices of non-food items rose 62.8 per cent.

Sri Lanka’s Central Bank Governor Nandalal Weerasinghe predicted earlier on Thursday that inflation in the island nation is peaking, with price rises likely to ease this month.

The NCPI captures broader retail price inflation and is released with a lag of 21 days every month.

The more closely monitored Colombo Consumer Price Index (CCPI), released at the end of each month, rose 69.8 per cent in August. It acts as a leading indicator for national prices and shows how inflation is evolving in Sri Lanka’s biggest city.

But the higher than expected inflation numbers are unlikely to push the central bank to increase rates next month, analysts told Reuters.

“Tariff increases for power and water implemented in August has spilled over into September along with a tax hike for telecommunications,” said Dimantha Mathew, head of research for Colombo-based investment firm First Capital, giving reasons for the inflation spike.

“However, the central bank is unlikely to increase rates as the economy is cooling down and we expect to see the pace of inflation slowing down from October.”

Sri Lanka is planning to increase direct taxes to reduce the deficit in its upcoming budget for 2023 and put the economy on a more stable footing, President Ranil Wickremesinghe said.

An acute dollar shortage, caused by economic mismanagement and the impact of the COVID-19 pandemic, has left Sri Lanka struggling to pay for essential imports including food, fuel, fertiliser and medicine.

In September, the country reached a preliminary deal with the International Monetary Fund for a loan of about $2.9 billion, contingent on it receiving financing assurances from official creditors and negotiations with private creditors.

Sri Lanka Central Bank Governor Nandalal Weerasinghe thinks inflation in the island nation is peaking, with price rises likely to ease this month, Bloomberg News reported on Friday.

“We think we are seeing the peak of inflation,” Weerasinghe said in a Thursday interview, although there was still some way to go in fixing the crisis-hit country’s economy and finances, the news agency said.

A key measure of Sri Lanka’s consumer inflation spiked to a record 69.8 per cent on year in September, highlighting the challenge for the central bank as the South Asian nation confronts an unprecedented financial crisis.

But Weerasinghe said in the interview: “It will be turning around and if that is lower in October, as we expect, then we can see that trend will continue.”

He did not indicate whether the central bank will go on an extended pause in raising interest rates, Bloomberg said.

“We need to assess not only the inflation number, but the outlook, the expectations, monetary expansion, the growth outlook and also level of reserve and exchange rate policy,” he said.

The governor said this month the bank needs to keep rates high to bring down inflation, while price rises were expected to slow in December and January.

Sri Lanka started debt-restructuring talks with creditors last month, and officials have expressed hope that an International Monetary Fund programme can be agreed by the end of the year.

The government is expected to present its budget for 2023 to parliament in mid-November, which is expected to include higher taxes and wider reforms of state enterprises, in line with commitments made to the IMF.

Sri Lanka’s financial crisis was partly caused by steep tax cuts in 2019, which together with the impact of the pandemic resulted in multiple ratings downgrades that locked it out of international financial markets.

Sri Lankan shares closed lower on Thursday, dragged down by industrials and consumer staples.

The CSE All-Share index closed 1.70 per cent lower at 8,737.38.

Sri Lanka aims to nearly double its tax revenue to around 15 per cent of gross domestic product by 2026 from 8.5 per cent now, President Ranil Wickremesinghe said on Wednesday, as his island nation attempts to find a way out of its worst economic crisis in seven decades.

Expolanka Holdings and Lanka IOC were top drags for the index on Thursday, falling 4.2 per cent and 8.3 per cent, respectively. Trading volume on the CSE All-Share index fell to 57.3 million shares from 83.2 million shares in the previous session.

The equity market’s turnover was 1.50 billion Sri Lankan rupees ($4.14 million), according to exchange data.