Sri Lanka cut petrol and diesel prices by up to six percent on Tuesday, its first reduction since the Middle East war triggered a surge in energy prices in the import-dependent nation.
The price cut was announced on the same day that data showed inflation had accelerated to its highest level in three years.
The state-run Petroleum Corporation said it reduced diesel prices by 25 rupees per liter to 382 rupees ($1.15), while petrol was cut by 20 rupees to 414 rupees ($1.25).
The reductions follow a sharp fall in global energy prices after the United States and Iran agreed to hold talks to bring an end to their conflict.
Also on Tuesday, official data showed consumer inflation rose to 6.8% in June from 5.5% in May, driven largely by higher food prices linked to increased energy costs.
Sri Lanka had recorded deflation of 0.6 percent in June 2025.
The Department of Census and Statistics said the latest inflation figure was the highest since June 2023, when prices were rising at an annual rate of 12%.
Sri Lanka raised petrol and diesel prices by nearly 50% after the United States and Israel launched attacks on Iran on February 28, triggering a surge in energy prices.
Electricity tariffs were also increased by a third as authorities sought to pass on higher import costs to consumers.
Sri Lanka, which imports all of its oil and also relies on imported coal for power generation, has warned that any prolonged conflict in the Middle East could threaten its fragile economic recovery.
The government told the International Monetary Fund (IMF), which approved a $2.9-billion bailout program for Colombo in March 2023, that sustained high energy prices could undermine efforts to recover from the country’s worst economic crisis.
Under the IMF-backed reforms, Sri Lanka is required to ensure cost recovery in fuel and electricity pricing while limiting subsidies that strain public finances.
Sri Lanka defaulted on its $46 billion foreign debt in 2022 after running out of foreign exchange. Colombo has been drawing down the IMF bailout to stabilize the country since then.