ZIPAR forecasts higher inflation

Zambia’s annual rate of inflation should be expected to continue escalating on the back of government’s continued external debt servicing, which is anticipated to exert more pressure on the kwacha, among others, says ZIPAR.

And the institute has advised the Bank of Zambia (BoZ) not to increase the monetary policy rate to try and control the level of inflation as this will slow down the country’s economy.

According to Zambia Institute for Policy Analysis and Research (ZIPAR) senior research Fellow Caesar Cheelo, the country’s inflation rate is expected to continue increasing for at least the remaining two months of the first quarter of this year due to government’s continued external debt servicing and importation of food stuffs.

The annual rate of inflation peaked to an over three-year high to end January at 12.5 per cent, according to Zambia Statistics Agency (ZSA) data, from 11.7 per cent recorded in December, 2019.

The increase in inflation was mainly attributed to price increases in both food and non-food items, such as higher fuel prices and hiked electricity tariffs.

“So, essentially, what has happened is that in the past two months, electricity prices have gone up, fuel prices went up, food prices went up and you see an acceleration in inflation. I don’t expect that we will see much more of a rise, but it will be there. The rise will be there because the main issue that will drive up the rise is imported inflation from foreign exchange demand. We are going to be servicing a lot of debt starting this month; there is a lot of debt service that we need to honour and our imports are not slowing down. So, because of that, there will be pressure to raise more money in kwacha to cover those debts and to cover the imports; that will cause some rise in inflation,” Cheelo said in an interview.
“It is very likely that we will still be in double-digit inflation in the first quarter because of pressures for money… and you know, when there’s shortages of goods or services relative to demand, you expect prices to rise. And this is what is happening, many of the commodities are in short supply; the money in the pockets of the people is low. So, in the first quarter, it is very likely you will see double-digit inflation continuing.”

He said there was need to change a number of fundamentals to the economy if the country was to see a reduction in inflation.

“We don’t expect much more of a [tariff] rise from electricity because that was a one-off jump; we don’t expect much more from fuel because that was a one-off jump. But we do expect food shortages to continue, we still expect the food-based inflation to rise; we expect inflation based on imports to rise. So, without any change to the fundamentals; [if] we are not changing our export structure; if we are not changing our import structure; we are stuck with a huge debt overhand…without any significant changes to those fundamentals, there is nothing that we can do to slow inflation or bring down the cost of living,” Cheelo added.

And Cheelo cautioned that any further increases in the Bank of Zambia’s (BoZ) Monetary Policy Rate (MPR) will slow down the country’s economy.

The BoZ hiked the MPR from 10.25 per cent to 11.50 per cent last November to contain the country’s escalating inflation and arrest further currency depreciation.

“You know, Monetary Policy is what is used, typically, to slow down inflation; so what the Bank of Zambia will do is to raise policy rates; to raise Statutory Reserve [Ratios] to withdraw liquidity from the economy. That is what they do in Monetary Policy, they withdraw liquidity. But remember that this time, when they withdraw liquidity, what will happen? It will slow down the economy more. It means there won’t be credit for the private sector to continue being productive,” observed Cheelo.
“So, slowing down the economy will inevitably mean reducing the supply of goods and services, creating artificial shortages. Those artificial shortages will mean prices will rise because there will be too much money chasing whatever little…amount of goods and services that you have. So, prices will rise. That is inflation. So, as long as fiscal policy is constrained, we don’t have sufficient money to cover our expenditures and Monetary Policy is going to be tight; you are stuck with high prices that will continue to rise.”




Ulande Nkomesha

About Ulande Nkomesha

Ulande is a reporter with an experience in radio broadcasting. He loves following current affairs and interacting with politicians.

Email: ulande [at] diggers [dot] news

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