The record inflation came after the Central Bank printed 45.2 billion rupees between May and September 2007 to bridge an expanding budget deficit.

According to data compiled by the government's statistics office, its previous high was 18 percent reached in December 2004, a year which saw a reversal in fiscal discipline resulting in the Central Bank printing 65 billion rupees over a period of eight months.

Sri Lanka had been plagued with high inflation since a central bank with money printing powers was created in 1951 after scrapping a currency board regime that had kept the small island economy stable under British colonial rule.

In recent months there have been growing calls for fundamental reforms to the island's central bank law to make it independent of the finance ministry and to put it under a legislated inflation target of under 5 percent a year.

An alternative proposal is to scrap the Central Bank and to return to a currency board arrangement.

Asia's smallest and richest nation states, including Singapore, Brunei and Hong Kong still have currency boards or monetary regimes closely resembling currency boards.

The record county-wide inflation came as the island's most watched index measuring consumer prices in Colombo hit 19.6 percent, in November.

Authorities had earlier claimed that the Colombo Consumer Price Index (CCPI) was "wrong" because it had a 1951 base. The country-wide index data is released late due to delays in collecting price information from remote areas.

In neighboring India, where budget deficits have been falling for the last decade and the Reserve Bank of India became independent of the finance ministry following a balance of payments crisis in 1991, inflation in now 3.75 percent.

Last month Sri Lanka introduced a controversial new index showing lower inflation, amidst severe criticism, which authorities claimed to show 'true' inflation. But critics point out that it does not even have alcohol and tobacco in it.

In February 2007, in high inflation Argentina, the top statistician in charge of price indices, Graciela Bevacqua, was sacked by the country's president due to her refusal to change index components.

Critics say altering the components of a price index is a favourite tactic of countries that print money and want to understate inflation, but it is difficult to do so over the long term without using more sophisticated techniques than what seems to be used in Sri Lanka.

Understating inflation allows a central bank to delay monetary policy tightening and print more money for the government, and overstate economic growth.

It also allows the government to under pay workers when wages are linked to inflation and underpay savers and provident funds when bond interest is linked to inflation.

The country is now facing similar conditions with a commercial borrowing to bridge largely current expenditure.