Consumer Price Inflation (CPI) is a double-edged sword for the Sri Lankan stock market, impacting it in both positive and negative ways:

Positive Impacts:

Hedging Against Inflation: Some stocks, particularly those in sectors like commodities or consumer staples, can act as a hedge against inflation. As inflation rises, the prices of the goods and services these companies provide also tend to go up, potentially leading to increased profits and higher stock prices.

Increased Investment Activity: In some cases, high inflation can lead to an increase in investment activity in the stock market. This can happen if investors perceive stocks as a better option than keeping their money in cash, which is being eroded by inflation.

Negative Impacts:

Erosion of Profits: Rising inflation can lead to higher input costs for companies, squeezing their profit margins. This can make stocks less attractive to investors seeking companies with strong financial performance.