Middle class slips as 0.4 m households move down income ladder: BCG

Thursday, 8 October 2026 05:31 - - {{hitsCtrl.values.hits}}

Sri Lanka’s record recovery in consumption has come alongside a downward shift in household incomes, with a new study showing that about 0.4 million households have slipped out of the middle class since 2020 even as average incomes rose in nominal terms.

According to ‘The Changing Path to Purchase in Sri Lanka: How Consumers Discover, Select and Transact Today,’ released by Boston Consulting Group (BCG) with The Ceylon Chamber of Commerce, the number of households rose to 6.7 million from 5.7 million between 2020 and 2026. Average monthly household income rose to Rs. 109,000 from Rs. 67,000 over the period.

Asked by the Daily FT how income distribution had changed since BCG’s 2020 study, BCG India Leader – Marketing, Sales and Pricing Practice, Managing Director and Partner Parul Bajaj said the number of households in the two lowest-income segments had increased. About 0.4 million households moved from the middle-income ‘Emerging’ segment into the ‘Aspirer’ and ‘Struggler’ segments. BCG classifies households earning less than Rs. 40,000 a month as Strugglers and those earning above Rs. 150,000 as ‘Established+’.

The rise in average income is in nominal terms, and Bajaj said the study had not tracked price increases between 2020 and 2026. The headline average therefore does not show how far real purchasing power has recovered, while the movement of households into lower segments points to a thickening of the bottom of the income pyramid.

Wealth is also concentrated geographically. The Urban West has twice as many affluent households as rural areas, while rural Sri Lanka accounts for 56% of all middle-class households. The middle class remains the largest source of consumption, but affluent households show the strongest intent to increase spending.

“When you study consumers, you always have to look at them by income segment, because their behaviour is very different depending on household income,” BCG Managing Director and Senior Partner Nishant Gupta said. “Over a period of time, economies typically move up the ladder.”

The divide shows up in how households spend. Essentials take up as much as 71% of spending among ‘Struggler’ and ‘Aspirer’ households. Although 77% of consumers across all income groups expect to spend more over the next six months, Bajaj said higher-income segments were more resilient in their plans, while lower-income households faced greater constraints. Housing, including rent and utilities, has risen to 22% of household spending from 21% in 2020, while education has slipped to 7% from 8%.

The gap extends to access to finance and technology. Digital banking is used by 8% of account holders in the lowest-income segment against 47% of the affluent, roughly six times as many. Credit cards are held by 19% of consumers overall but 33% of households earning above Rs. 150,000 a month. Among the affluent, 71% are aware of Generative AI and 29% use it, against 55% and 18% of all consumers.

The findings suggest that the consumption recovery, while real in aggregate, rests on an income base that has become more uneven since 2020, with a larger share of households at the bottom and spending power increasingly concentrated in the higher-income, urban segments.