Sri Lanka's key inflation rate eases to 25.2% in May

COLOMBO (Reuters) - Sri Lanka's key inflation rate eased to 25.2% in May from 35.3% in April, the statistics department said on Wednesday, reducing some stress on the crisis-hit economy. Soaring inflation has battered the economy for more than a year after a severe foreign exchange crisis set off the Indian Ocean island's worst financial crisis in seven decades.

The Colombo Consumer Price Index (CCPI) reflected a reduction in food inflation to 21.5% in May from 30.6% in April, while non-food inflation reached 27%, the Census and Statistics Department said in a statement.

"Coming off a high base is helping Sri Lanka's inflation reduce rapidly and we expect this to continue in the coming months," said Dimantha Mathew, head of research at First Capital.

"Sri Lanka is on track to hit single-digit inflation by September or, perhaps, even a bit earlier."

Easing inflation is also likely to prompt the central bank to keep its policy rates unchanged.

Thirteen of 15 analysts and economists polled by Reuters expect the Central Bank of Sri Lanka (CBSL) to hold benchmark rates steady on Thursday, at the year's fourth policy rate announcement, set for 7:30 a.m. (0200 GMT)

The figure for national consumer price inflation, released with a lag of 21 days every month, eased to 33.6% year-on-year

in April.

The CCPI, a lead indicator for broader national prices, tracks inflation in Colombo, the biggest city.

(Reporting by Uditha Jayasinghe in Colombo and Rama Venkat in Bengaluru; Editing by Andrew Heavens and Clarence Fernandez)

By Uditha Jayasinghe