Inflation Decline Assures Economic Stability

 

By Derrick Silimina

Zambia has started 2022 with a record low 10.2 percent inflation rate, the lowest since October 2020.

After being elected in August against the backdrop of a strong campaign message to fix the economy and restore fiscal stability, President Hakainde Hichilema’s Government has hit the ground running. 

Barely five months into office, the Hichilema administration secured a staff level agreement for a $1.4 billion economic structural adjustment programme with the International Monetary Fund (IMF). 

Arguably, the dividends of Zambia’s macroeconomic stabilisation programme have started yielding positive results and one such critical fundamental that has so far responded positively is the inflation rate, which has reduced to 10.2 percent in May 2022 from 16.4 percent recorded in December 2021. 

“The continued reduction in the inflation rate is supported by the stability in the price of many goods, stable exchange rate, and the confidence stakeholders have in our capabilities to manage the economy and bring normalcy. The situation where people’s incomes or salaries every month are buying fewer goods and services each time the rate increases will soon be over,” President Hakainde Hichilema recently posted on his Facebook page. 

The Zambia Statistics Agency (ZamStats) says the decrease of inflation by 1.3 percentage points means that on average, prices of goods and services increased by 10.2 percent between January 2021 and January 2022. 

“The slowdown in annual inflation was mainly attributed to favourable price movements in food items,” said ZamStats Interim Statistician General Mulenga Musepa. 

The fiscal space is now on the mend with a considered aim to achieve a single-digit inflation rate by the end of the year, bringing about manageable levels in the cost of living. 

OVERALL INCREASE 

A critical analysis of the month of December 2021 shows an overall increase in the prices of essential items. For instance, the cost of living for a family of five in Lusaka as measured by the Jesuit Centre for Theological Reflection (JCTR) Basic Needs and Nutrition Basket (BNNB) for December 2021 stood at K8, 359.80, a K214.52 increase in comparison to the November basket that stood at K8, 145.28. 

According to JCTR’s monthly bulletin, the increase in the prices of fuel also appears to have had an impact. While justified especially in view of key variables such as the exchange rate and the price of crude oil per barrel on the international market, its impact on the cost of living is undeniable.

 

PETROLEUM PRODUCTS 

Recently, the Energy Regulation Board (ERB) reduced the pump price of petroleum products by K1.32 for petrol and K1.22 per litre for diesel. 

In a statement, ERB Board Chairperson Reynolds Bowa said that according to the market fundamentals for the month of December 2021, international oil prices for petrol and diesel recorded a notable decline with the Kwacha also appreciating against the United States Dollar. 

Bowa noted that the petrol prices declined by 11.56 percent from $96.39 cents per barrel recorded in October 2021 to $85.25 cents in December 2021 while Diesel Prices also declined by 10.64 percent from $93.27 cents per barrel to $83.35 cents per barrel. 

The local currency, the kwacha, has opened the year with a gain of nearly seven percent against the US dollar, with the central bank projecting inflation to average 15 percent next year and 9.3 percent in the first three quarters of 2023. 

Economic analysts observe that the IMF Staff Level Agreement with the Zambian Government and sustained supply of foreign exchange, particularly from mining companies and foreign investors in Government securities, has contributed to the rebound of the Kwacha. 

Despite the recent hike in transport fares of 18 to 34 percent early this year, the USD-ZMW pair opened the forex market with a bullish Kwacha and as at January 31, 2022, the local currency traded at 17.23/18.89 against the US dollar. 

PRICING CARTELS 

In this context, the Zambian Roads and Highway Safety Group (ZRHSG) has urged the Zambian Government to stop the pricing cartels within the public passenger bus sector and allow each bus operator to determine their own bus fares. 

The Highway Safety Group has noted with concern the continued existence of this pricing cartel for many years that benefits only the bus owners and tends to hold to ransom public bus passengers who have no choice but to pay the fixed bus fare. 

The ZRHSG believes that the pricing cartel has always left passengers disadvantaged as they have no choice when it comes to bus fares as all fares are pegged at the same cartel price and bus fare regardless of the type and standard of bus services being provided. 

“The Highway Safety Group looks forward to safer, efficient and cheaper modes of passenger transport as better and newer models of buses are introduced on our roads,” ZRHSG Group Admin Mthoniswa Banda said. 

For this reason, it is envisaged that the long-term odds for the country’s economy remain bright, especially if the New Dawn administration sticks to its campaign promise of rooting out Government corruption and prudently spending public resources.