Is Inflation in Sri Lanka always and Everywhere a Monetary Phenomenon?

This study addresses the issue as monetarist’s claim that inflation is always and everywhere a monetary phenomenon. Using annual data obtained from annual report of central bank of Sri Lanka over the period of 1977-2019, we tested the relationship between inflation and real GDP, broad money supply, velocity of money and nominal wages of government sector using ARDL technique. Results clearly indicates that there is a long-run and short-run relationship between inflation and other independent variables. Secondly, estimated results further indicates that velocity of money and broad money supply strongly linked in both long-run and short-run so much so that the results suggesting that money policy tools may be effective in controlling inflation in Sri Lanka. This study has number of policy implications for policy makers in Sri Lanka. Sri Lanka has been continuously based its monetary policy strategy on the premise that money supply and inflation has strong relationship.  In other words, as Milton Friedman put forward “inflation is always and everywhere a monetary phenomenon”.