Sri Lanka’s National Consumer Price Index (NCPI) slowed year-on-year to 70.6 per cent in October after a record 73.7 per cent jump in September, the statistics department said on Monday.

Food inflation was 80.9 per cent in October, while non-food inflation was 61.3 per cent, the Department of Census and Statistics of the crisis-struck nation said in a statement.

Sri Lanka has been struggling with soaring inflation for nearly a year, partly triggered by its worst financial crisis in seven decades and a ill-thought out ban on chemical fertiliser implemented last year, which has since been reversed.

“Prices will not go down but they are stabilising,” said Rehana Thowfeek, economist at the Colombo-based Advocata Institute think tank.

“The government is introducing fresh taxes and other measures to stabilise the economy. So households will continue to feel price pressure.”

Central Bank of Sri Lanka Governor Nandalal Weerasinghe predicted that if the current trend of monetary policy was followed, inflation could drop to 4 per cent-5 per cent by the end of next year.

In an effort to tame prices and stabilise markets, the bank has raised interest rates by 900 basis points this year. Its final policy announcement for 2022 will be on Thursday.

The NCPI captures broad retail price inflation across the island nation and is released with a lag of 21 days every month.

The Colombo Consumer Price Index (CCPI), released at the end of each month, is more closely monitored. It acts as a lead indicator for broader national prices and shows how inflation is evolving in the biggest city of Colombo.

The CCPI eased to 66 per cent in October, data showed last month.

In September, Sri Lanka reached a preliminary deal with the International Monetary Fund for a $2.9 billion bailout but it needs to get its debt on a sustainable track and put its public finances in order before funds can be disbursed.

Sri Lanka was battered by COVID-19, which slashed tourism and remittances from workers overseas. It was then hit by rising oil prices, populist tax cuts and the seven-month ban on the import of chemical fertilisers that devastated agriculture.

Meanwhile the Sri Lankan economy can turn around by the end of 2023 if budget policies, which are not limited to the International Monetary Fund’s recommendations, are followed, President Ranil Wickremesinghe said last week.

IMF recommendations have only been looked at to stabilise the economy, Wickremesinghe, who is also the country’s finance minister, told parliament, delivering the first annual budget since he took office in July.

The budget included measures aimed at reducing the government’s deficit as Colombo seeks to secure an IMF bailout package to help the country recover from its worst financial crisis in decades.

Soaring inflation, a weakening currency and low foreign exchange reserves have left the island of 22 million people struggling to pay for imports of essentials such as food, fuel and medicine.

Mass unrest forced the previous president and prime Minister out of power, and the country remains vulnerable to political instability as fears of a global recession have added to the problems for an economy that suffered a catastrophic contraction.

Wickremesinghe laid down several medium-term targets for the government: increasing international trade as a percentage of GDP by more than 100 per cent, annual growth of $3 billion from new exports over the next 10 years as well as attracting $3 billion in foreign direct investment over the same period.

He also said the government plans to reduce debt to less than 100 per cent of GDP over the medium term and achieve economic growth of around 7-8 per cent.

“With a lot of taxes already implemented, on the revenue side the budget primarily seems to be aiming towards tax administrations, reducing the leakages and broadbasing the tax net,” said Trisha Peries, head of research at CAL Group.

Analysts said tax collections would be critical for the country since it is unlikely to be able to cut expenditure massively in an effort to fund the welfare schemes while the government’s ability to meet its interest payments will also be watched.

The World Bank estimates Sri Lanka’s economy will contract by 9.2 per cent in 2022 and 4.2 per cent next year.

Sri Lanka’s economy could recover in the “latter part of 2023”, the central bank said recently, adding that this would be dependant upon policymakers implementing reforms quickly and effectively. Sri Lanka signed a staff-level agreement with the IMF in early September but needs to get financing assurances from multiple creditors, including China and Japan, to secure disbursements.