Crisis-hit Sri Lanka is fighting short-term inflation

Sri Lanka raised gasoline and transportation costs on Tuesday, a long-awaited measure to address the country’s crippling economic crisis, but the increases are likely to aggravate the country’s already-high inflation, at least in the short term.

In a statement on Twitter, Power and Energy Minister Kanchana Wijesekera warned that gasoline prices will jump by 20% to 25% and diesel prices would climb by 35% to 38% with immediate effect.

“Cabinet also approved the revision of transportation and other service charges accordingly,” he said.

People would be encouraged to work from home “to minimise the use of fuel and manage the energy crisis,” according to Wijesekera, while public sector personnel would only work from their offices when ordered by the institution’s director.

According to economists, price hikes in food and transportation will trickle down to food and other commodities.

According to government figures issued on Monday, annual inflation in the island country reached a new high of 33.8 percent in April, up from 21.5 percent in March.

Sri Lanka is experiencing its greatest economic crisis since independence, as a severe lack of foreign cash has slowed imports and left the country short of gasoline and medicines, as well as experiencing recurring power outages.

The COVID-19 outbreak, which is wreaking havoc on the tourism-dependent economy, has been compounded by rising oil costs and populist tax cuts implemented by President Gotabaya Rajapaksa and his brother, Mahinda, who resigned as Prime Minister earlier this month.

Economists believe that raising fuel and electricity prices would be required to close a significant revenue imbalance in the government, but that it will cause short-term suffering.

According to Dhananath Fernando, an analyst at the Advocata Institute in Colombo, petrol prices have risen 259 percent and diesel prices have risen 231 percent since October last year. He claims food and other vital products have increased in price.

“Poor people will be the most effected by this. The solution is to establish a cash transfer system to support the poor and increase efficiency as much as possible.“

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