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Insight & Analysis - December 30, 2021

Zambia’s Inflation Rate Falls to 14-Month Low on Food Prices

The kwacha has risen about 7% versus the dollar since the 3rd of December, when the southern African country struck a long-awaited staff level deal with the International Monetary Fund.

Zambia’s inflation rate decreased to a 14-month low, moderated by rising food prices. Mulenga Musepa, Zambia’s interim statistician-general, told reporters Thursday in Lusaka, the capital, that consumer prices grew 16.4 percent year on year, compared to 19.3 percent in November. This is the lowest number since October 2020.

Food-price decreased to a 13-month low of 19.9 percent in December, compared to 25.4 percent the previous month, while non-food inflation slowed to 12.1 percent, down from 12.2 percent in November. In the previous month, prices increased by 0.6 percent.

Due to the continued slowing in inflation, the central bank, which targets price rise of 6% to 8%, is expected to hold the benchmark interest rate steady when its monetary policy committee meets in February. This is to give the Marginal propensity to consume (MPC) time to analyse the impact of a 50-basis point boost in November and a stronger euro on containing inflation and balancing rising fuel prices.

The Key Driver of Zambia’s Economy

The kwacha has risen about 7% versus the dollar since the 3rd of December, when the southern African country struck a long-awaited staff level deal with the International Monetary Fund. The agreement for around $1.4 billion in the capital still has to be authorised by the Washington-based lender’s executive board in order to break the ground for discussions with creditors to restructure approximately $16 billion in external debt. In October 2020, the previous administration of then-President Edgar Lungu stopped paying practically all dollar debt.

To aid in securing IMF funding, the energy regulator raised pump prices by a fifth on December 17 after eliminating gasoline subsidies that had kept costs artificially steady for two years. It also said that gasoline and diesel prices will henceforth be reviewed every 30 days rather than biweekly.

The increase in gasoline prices, followed by an increase in transportation fees of 18% to 34%, were not included in the most recent inflation figure since they occurred after the statistics office collected pricing data. Inflation may rise as a result of this, as well as a 13% increase in power costs scheduled in March. The central bank forecasted last month that Zambia’s inflation would average 15% next year and 9.3% in the first three quarters of 2023.

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