COLOMBO, Aug 31 Reuters Sri Lanka39;s key inflation rate eased to 4 in August from 6.3 a month ago, the statistics department said on Thursday, marking continued stabilisation for the crisisridden economy.

Soaring inflation has battered the economy for more than a year after a severe foreign exchange shortage touched off the Indian Ocean island39;s worst financial crisis in seven decades.

The Colombo Consumer Price Index CCPI reflected food inflation reaching a negative 4.8 in August, after hitting a negative 1.4 in July. Nonfood inflation was 8.7, the Census and Statistics Department said in a statement.

Over the last six months, inflation has gradually slackened from a peak of 50.6 in February, after the government changed the base year of inflation in its calculation from 2013 to 2021.

In September last year, inflation soared to 69.8, with food inflation at 94.

Even though there were gas, water and fuel increases in August, that is not reflected in inflation numbers because of the high base effect, said Dimantha Mathew, head of research, First Capital.

But inflation will stop benefiting from the high base effect from September, and then we expect inflation to stabilise at around 5.

Since Sri Lanka secured a 2.9 billion bailout from the International Monetary Fund in March, its economic stress has been slowly subsiding with its currency appreciating about 10 this year and reserves improving.

But the economy is nevertheless expected to record a 2 contraction,…