ECONOMYNEXT – Inflation measured by the Sri Lanka Christmas cake, widely acclaimed to be the world’s most delicious, rich, ‘decadent’ and interesting confection of its kind, has risen by 4.4 percent in 2025, amid rupee depreciation, an analysis of retail prices show.
The cost of 11 key ingredients rose to 15,180 rupees by 2025, up from 14,744 in 2024 with rupee inflating 5.3 percent.
Rules vs Discretion
In the 12 month to November, the rupee fell from 290.90 rupees to 306.30 to the US dollar, as the central bank selectively denied convertibility to private citizens and bought dollars in excess of deflationary policy, pushing the unfortunate currency down.
Sri Lanka’s currency is inadequately protected from discretionary central bank action (flexible exchange rate) analysts have said.
But over 24 months the Sri Lanka (World’s Most Delicious) Christmas Cake Index showed deflation of 4.6 percent.
The Colombo Consumer Price Index rose 2.1 in the 12-months to November 2025. In the 24 months to November 2025, the index was unchanged at 193.4 points, showing zero inflation.
In 2025 Sri Lanka’s central bank avoided inflationary open market operations and ran a classical style scarce reserve regime, giving stability to domestic prices and missed its inflation target.
The central bank but cut rates in May which analysts said reduced the ‘buffer’ to collect reserves and repay debt, by driving up private credit.
To protect the people and prevent a next default from the sharp edge of discretionary inflationism (flexible inflation targeting) from a high inflation target which appears to be a floor, calls have been made for a true restraint made up of a low ceiling.
RELATED : Sri Lanka should mandate 2-pct inflation ceiling to avert next economic crisis
In 2025, US monetary policy was relatively benign, with steady quantity tightening (deflationary policy), slightly taming its abundant reserve regime, which critics say is one of the deadliest frameworks ever seen in the history of note issue banking.
The Sri Lanka Christmas cake is a result of Dutch, British influences and a mix of candied ingredients made by traditional processes found in Sri Lanka (chow-chow and pumpkin preserve), and imports (sultanas, raisins, and cherries)
“The Romans might have invented the fruitcake, but Sri Lanka, a tiny island in the Indian Ocean, perfected it,” Australian foodie channel SBSFood.com says in a post titled The best Christmas cake you’ll ever eat comes from Sri Lanka.
“The cake is traditionally iced with marzipan made from local cashews, not almonds, then cut into small rectangles and wrapped in coloured cellophane.
“Sri Lankan Christmas Cake is is not your typical fruit cake,” adds kitchensimmer.com
“Yes, it has some fruit and nuts, but it’s got so much more rich and delicious ingredients that it’s bursting with flavor.”
“For years I firmly believed that I had tried every single variation of the Christmas cake possible. Light, dark, moist, dry, British, Scottish, Italian, Serbian, according to an award winning food blogger and writer at Food52.com.
“I would have never thought that the richest, the most decadent, the most interesting and the most delicious Christmas cake of all would come from Sri Lanka.”
Monetary Food Bubble
The Sri Lanka Christmas cake does not use flour, but semolina.
Semolina prices shot up to 752 rupees a kilogram in 2022, with the Fed firing a massive commodity bubble after Covid-19 linked injections, as the rupee also collapsed from 200 to 360 to the US dollar in a float failed by a one-sided convertibility undertaking (surrender rule).
Amusingly, inflationist macro-economists as well as the International Monetary Fund, blamed Putin for the global commodity and energy bubble.
But the Fed began deflationary policy and rate hikes in March 2022 and wheat prices started to fall from the second half of 2022.
Semolina prices have since halved in Sri Lanka to around 350 rupees a kilogram and stayed there. The Sri Lanka rupee was also appreciated in 360 to 300 by the central bank through deflationary policy and lifting of the surrender rule.
However in 2025 rupee was again depreciated by excess dollar purchases by the central bank (strong side convertibility when the rupee was not strong) and selective weak side convertibility.
RELATED : Sri Lanka’s exchange rate depreciation by ‘Political Ravishment’
However, the Federal Reserve deflationary policy has since been ended. Gold prices hit 4,480 dollars an ounce in December 2025.
Gold was 20 dollars an ounce when the Fed Reserve was created and for about two centuries earlier.
The Fed invented open market operations giving rise to peacetime economic bubbles that imposed immense hardships on the poor as well as businesses and government finances, when they burst. (Colombo/Dec25/2025)
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