In a long-flagged move to combat its debilitating economic crisis, Sri Lanka increased fuel prices on Tuesday to a record high, but the hikes are bound to exacerbate galloping inflation, at least in the short term.

It is seen as adding further pain to the cash-strapped country’s 22 million people in its worst crisis since independence.

The South Asian island nation has suffered months of dire shortages and anti-government protests, which turned deadly earlier in May with at least nine people killed.

Power and Energy Minister Kanchana Wijesekera said a newly appointed "economic war cabinet" on Monday approved the new rates to stem huge losses at the state-run Ceylon Petroleum Corp.

Wijesekera said in a message on Twitter that petrol prices would increase by 20%-24% while diesel prices would rise by 35%-38% with immediate effect. Daily limits on how much each consumer can purchase will continue.

"The government will hold talks with transport sector stakeholders to increase costs parallel to the latest increases," he later said in an online cabinet briefing.

Food and transport price increases will flow through to food and other goods, economists said.

The price of diesel, commonly used in public transport, was raised from 289 rupees ($0.80) to 400 rupees a liter, a 38% jump, while the cost of a liter of petrol was increased from 338 to 420 rupees.

Wijesekera also said that people would be encouraged to work from home "to minimize the use of fuel and to manage the energy crisis" and that public sector officials would work in the office only when instructed by the head of the institution.

However, hybrid working models have led to increases in power consumption in other countries, including in neighboring India.

Annual inflation in the island nation rose to a record 33.8% in April, according to government data released on Monday, with food inflation at an even higher 45.1%.

However, an economist at the Johns Hopkins University, Steve Hanke, who tracks prices in the world’s trouble spots, said Sri Lanka’s inflation was even higher than officially reported.

"Using high-frequency data and the purchasing power parity technique, I accurately measure inflation at 122% year on year," Hanke said, referring to March inflation, which was officially 21.5%.

"Inflation is crushing the poorest in Sri Lanka," he added.

Sri Lanka is in the throes of its worst economic crisis since independence in 1948, as a dire shortage of foreign exchange has stalled imports and left the country short of fuel and medicines, and struggling with rolling power cuts.

The financial trouble has come from the confluence of the COVID-19 pandemic battering the tourism-reliant economy, rising oil prices and populist tax cuts by the government of President Gotabaya Rajapaksa and his brother, Mahinda, who resigned as prime minister this month.

Economists have said fuel and power price hikes would be necessary to plug a massive gap in Sri Lanka's government revenues but agreed that it would lead to short-term pain.

Dhananath Fernando, an analyst for Colombo-based think tank Advocata Institute, said prices of petrol have soared 259% since October last year and diesel by 231%. Prices of food and other essential goods have also surged, he said.

"Poor people will be the most affected by this. The solution is to establish a cash transfer system to support the poor and increase efficiency as much as possible."

Prime Minister Ranil Wickremesinghe, appointed in place of Mahinda Rajapaksa earlier this month after violence broke out between government protesters and protesters, said last week: "In the short term, we will have to face an even more difficult time period. There is a possibility that inflation will increase further."

Sri Lanka last month announced a sovereign default on its $51 billion foreign debt and is in talks with the International Monetary Fund (IMF) to secure a bailout.

The government imposed a broad import ban in March 2020 to save foreign currency as dollar inflows slowed.

The local currency has lost its value rapidly. A U.S. dollar bought 200 rupees in March, but the exchange rate has now deteriorated to 360 rupees to the dollar.

Protesters are continuing to demand the president quit, and the country is still without a finance minister to conduct urgent bailout talks with the IMF.