Sri Lanka cuts fuel prices, inflation rises

By the Editorial Team · Wednesday, July 1, 2026

Sri Lanka’s state-owned Petroleum Corporation reduced petrol and diesel prices by up to six percent on July 1, the first cut since fuel costs surged earlier this year due to Middle East conflicts. Although the price drop reflects easing global energy costs and IMF-backed reforms, inflation hit 6.8% in June, driven mainly by rising food prices, highlighting continued economic challenges.

Sri Lanka announced a reduction in petrol and diesel prices on July 1, marking the first cut since the escalation of the conflict in the Middle East prompted a sharp rise in energy costs for the import-reliant nation. The state-owned Petroleum Corporation lowered diesel prices by 25 rupees per litre to 382 rupees (approximately $1.15) and petrol by 20 rupees to 414 rupees (around $1.25), equating to a decrease of up to six percent.

This price adjustment comes amid a decline in global energy prices, attributed in part to renewed diplomatic efforts between the United States and Iran aimed at resolving their dispute. Despite the fuel price cuts, official statistics released the same day indicated that consumer inflation accelerated to 6.8% in June, up from 5.5% in May. The rise was primarily driven by increased food costs, according to the Department of Census and Statistics. This marks the highest inflation rate since June 2023, when annual inflation reached 12%. Notably, Sri Lanka had experienced deflation of 0.6% in June 2025.

Earlier in the year, Sri Lanka had implemented substantial increases in petrol and diesel prices—nearly 50%—following attacks launched by the US and Israel against Iran in late February. The surge in energy prices also compelled authorities to raise electricity tariffs by approximately one-third as import costs were passed to consumers.

Sri Lanka imports all of its oil and relies heavily on imported coal for electricity generation, making the country particularly vulnerable to fluctuations in global energy markets. The government has cautioned that a prolonged conflict in the Middle East could hinder its fragile economic recovery.

Since defaulting on $46 billion of foreign debt in 2022 amid a severe shortage of foreign exchange, Sri Lanka has been working with the International Monetary Fund (IMF) to stabilize its economy. In March 2023, the IMF approved a $2.9 billion bailout package for the country, under which Sri Lanka is required to implement reforms focused on cost recovery in fuel and electricity pricing while limiting subsidies that place strain on public finances. The recent price adjustment aligns with these conditions but also underscores the ongoing challenges faced by Colombo amid external geopolitical uncertainties and domestic economic pressures.

This article was reported by synthesizing coverage from multiple independent news outlets to present a balanced, unbiased account. Read about our editorial standards. Spotted an error? Let us know.