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This paper investigates price rigidity in Sri Lanka’s service sector using monthly data from 2010 to 2023. First, an autoregressive model is employed to assess price rigidity. In the second stage, the Phillips and Sul panel club convergence method is applied to examine price convergence across service sub-sectors. The findings confirm the presence of price rigidity, while also revealing club convergence among various sub-sectors. From a policy perspective, this suggests that Sri Lanka’s monetary policy may have a limited impact on controlling service sector inflation. Consequently, the combination of price rigidity and the lack of broad-based convergence in service prices could have adverse long-term effects on economic growth.
Perera et al. (Mon,) studied this question.