Sri Lanka increased fuel and transport prices on Tuesday, a long-flagged move to combat its debilitating economic crisis, but the hikes are bound to exacerbate galloping inflation, at least in the short-term.

Power and energy minister Kanchana Wijesekera said in a message on Twitter that petrol prices would increase by 20 per cent-24 per cent while diesel prices would rise by 35 per cent-38 per cent with immediate effect.

“Cabinet also approved the revision of transportation and other service charges accordingly,” he said.

Wijesekera said also that people would be encouraged to work from home “to minimise the use of fuel and to manage the energy crisis” and that public sector officials would work from office only when instructed by the head of the institution.

Food and transport price increases will flow through to food and other goods, economists said.

Annual inflation in the island nation rose to a record 33.8 per cent in April compared to 21.5 per cent in March, according to government data released on Monday.

Sri Lanka is in the throes of its worst economic crisis since independence, as a dire shortage of foreign exchange has stalled imports and left the country short of fuel, medicines and hit by rolling power cuts.

The financial trouble has come from the confluence of the Covid-19 pandemic battering the tourism-reliant economy, rising oil prices and populist tax cuts by the government of President Gotabaya Rajapaksa.

Economists have said fuel and power price hikes will be necessary to plug a massive gap in government revenues. Dhananath Fernando, an analyst for Colombo based think tank Advocata Institute, said prices of petrol have soared 259 per cent since October last year and diesel by 231 per cent.

Prices of food and other essential goods have surged, he said.