Coming from a year that was a challenge to many businesses due to the unfavourable business environment created by the Corona virus pandemic of 2019, 2021 does not seem like much of a different year; the number of reported infections has continued going up amidst reports of a new variant.
The month of January has just posted a 21.5% annual inflation rate. This is to say that the average prices of goods and services have increased by a 21.5% from January last year. However, on a more positive note, Zambia did record a trade surplus of K6.3bn in the month of December 2020. This article is intended to give some details on the prevailing economic conditions in Zambia.
The annual inflation rate for January, 2021 increased to 21.5% from 19.2% recorded in December 2020. The increase in inflation rate is mainly attributed to the increase in the food and non-alcoholic beverage prices, although this is not to say there was no increase in other items. The Food and Non-alcoholic beverages group contributed 13.8 percentage points, while Non-food items accounted for 7.7 percentage points to the overall inflation rate of 21.5%. On the non-food food items, the transport group contributed the highest at 2.7%. Other increases came from Housing, Water, electricity, gas, and other fuels. Communication came in at last with regards to the annual inflation rate by CPI at 2.8% an increase of 0.2% from the 2.6% recorded in the month of December 2020. Transport, in relation to other components in January 2021, recorded the highest consumer price index at 38.6% despite it having 0.2% reduction from the 38.8% recorded in the previous month. Housing, water, electricity, gas and other fuels group had the biggest reduction in its CPI from 21.7% in December 2020 to 14.6% in January 2021; being a group with the second-highest weight division from the food and non-alcoholic beverage item, it definitely had an impact on the final annual inflation rate. This is all according to the data provided by ZAMSTAT.
The province by province contribution showed Lusaka having contributed the highest at 6% followed by the Copperbelt with a contribution of 4% to the January 2021 annual inflation rate of 21.5%. The northwestern province had the lowest contribution of all provinces, at 0.7%.
On what might be considered as a positive note, Zambia did record a trade surplus of K6.3bn in the month of December 2020. The surplus is, however, a reduction from the K7bn recorded in November 2020. According to the data provided by ZAMSTAT, the reduction in the trade surplus is a consequence of the reduction in exports and an increase in imports. “Exports mainly comprising domestically produced goods, decreased by 0.1 percent to K16.3 billion in December 2020 from K16.4 billion in November 2020. Imports on the other hand, Imports increased by 9.0 percent to K10.1 billion in December 2020 from K9.3 billion in November 2020,” a report from ZamStat stated.
With inflation still remaining in double digits and the Kwacha to US dollar exchange rate has gone beyond the K21/dollar mark, it should prudent for the central bank to see how best they can adjust the policy rate during the monetary policy committee meeting in the first quarter of 2021, to tackle all these arising issues.