Sri Lanka's key inflation rate rose to 1.5% in October from 1.3% a month ago, the statistics department said on Tuesday.

The Colombo Consumer Price Index, a leading indicator for broader national prices, tracks inflation in Colombo, Sri Lanka's biggest city.

Food prices fell 5.2% in October after declining 5.2% in September, from a year earlier, the Department of Census and Statistics said in a statement. Prices for non-food items, however, climbed slightly to 4.9% in October after rising 4.7% in September.

Sri Lanka experienced record high inflation after its economy was pummelled by the worst financial crisis in decades last year triggered by low foreign exchange reserves.

In the country of 22 million people, the economy stabilised to some degree after Sri Lanka finalised a $2.9 billion bailout from the International Monetary Fund (IMF) in March but targets under the program have added to inflation woes.

Sri Lanka's Cabinet approved

increasing Value Added Tax (VAT)

from 15% to 18% from Jan. 1 to shore up public revenue, which has fallen short of targets set by the IMF, and that could push inflation.

By December, inflation is expected to hit 5%, analysts said, in line with the Central Bank of Sri Lanka (CBSL) target range of 4%-6%.

"We may not immediately see a significant increase in inflation from the VAT and global energy price increases but inflation could reach about 8% by July," said Dimantha Mathew, head of research at First Capital Research.

Sri Lanka's economy is still expected to contract by 2% in 2023 after shrinking 7.8% last year.

(Reporting by Uditha Jayasinghe, editing by Ed Osmond)