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Zambia's Inflation Rate: A Justifiable Outcry For Policy Intervention

Global Market	1190 VIEWS
Global Market
1190 VIEWS

Friday, August 30, 2019 / 03:00PM / United Capital Research / Header Image Credit: Southern African Development Community

Earlier this week, the Central Statistical Office of Zambia published the country's Jul-19 inflation figures. Compared to the prior month, the headline inflation rate was up 50bps to 9.3% - the highest in three years. This was due to significant pressure from the food inflation sub-index which rose by 100bps to 10.3%.

The continuous uptick in the inflation number has been a lingering issue for policy makers. Currently, the southern African country is plagued by a climate challenge, which has continually bitten into its efforts at price stability. The country is facing its worst drought in four decades. As a result, agricultural activities have slowed, causing food prices to surge amid limited supply and growing demand. As if the troubles associated with weak agricultural output was not enough, about 85% of Zambia's electricity generation is created through hydroelectric power, with the drought causing enormous distortion to power generation. This in turn fueled an increase in costs of production, trickling down to prices of goods.

In line with the current situations the country is facing, the government has escalated efforts, proposing to introduce a cap on the price of cereals, to keep staple food affordable. Although the underlying issues are somewhat environmental, the continued uptrend in inflation might spark a response from the monetary authority to further hike policy rate, after the 50bps increase in May-19 to 10.25%. Unfortunately, like most African countries, the habit of waiting till economic problems manifest before policy action, continually undermines economic growth and development.

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