The Colombo Consumer Price Index, which is used as the measure for national purposes, rose to 3,986.7 in January from 3,479.4 a year earlier, the Central Bank of Sril Lanka said in a statement.

In January 2004, prices had risen just 0.5 percent from a year earlier.

The latest figures come after the International Monetary Fund last month cut its Gross Domestic Product (GDP) growth projection for Sri Lanka from 5.0 percent to 4.0 percent and it forecast a rise in inflation of 14 percent in 2005, up from a previous estimate of 12 percent.

The country has been facing a more difficult economic environment over the past year, being especially badly hit by rising oil prices, and the December 26 tsunami which devastated the south and east coast has added to the problems.

The government initially put the cost of rebuilding after the tsunami at about 1.3 billion dollars but later revised it to 3.5 billion dollars, which it hopes will be funded by international donors.

Sri Lanka's trade deficit hit a record 1.94 billion dollars in the first 11 months of last year due to higher expenditure on oil imports, the Central Bank said last week.

"This deficit has been financed largely with the remittances and other inflows," the bank said.

Sri Lanka has said it was facing a foreign exchange crisis and slapped higher taxes on cars and other luxury goods to discourage imports while the rupee fell by nearly nine percent during 2004.

However, following the tsunami and the subsequent inflow of foreign aid, the local currency recovered almost all its lost ground to be among the world's best performing currencies this year.