- Runaway inflation characterizes Q1 2020 for Zambia
When the moment came for the rate decision to be made, the Bank of Zambia decided to maintain the policy rate at 11.5% as of February 18th, 2020 following its Monetary Policy Meeting. In arriving at this decision, the Committee took into account that, although inflation will continue to rise over the earlier part of the forecast period, it is expected to decline towards the upper bound of the target range, thereafter as good supply improves. The committee was mindful that inflation has been largely driven by rising food prices.
As of February 2020, the monthly inflation rate was at 1.9% indicating an increase of 0.1% as compared to January 2020 when it recorded an inflation rate of 1.8%. This has been attributed to the rise in non-food prices such as the purchase of vehicles and transport services such as mini-buses, taxi fares, and airfares.
According to trading economics, Actual inflation rate is at 13.9%. This is expected to reduce to 13.6% by the end of the first quarter and an anticipated reduction throughout the course of the year. Of the 13.9% annual inflation rate recorded in February 2020, food and non-alcoholic beverages accounted for 8.4 percentage points, while non-food items accounted for 5.5 percentage points. Of the 5.5 percentage points, housing, water, electricity, gas and other fuels contributed the highest at 1.9 percentage points followed by transport contributing to 1.8 percentage points. Education, restaurants, and hotels had the least contribution attributing to 0 percentage points each.
The rate of inflation is expected to reduce into 13.6% by the end of the first quarter in 2020, but with the current worldwide Coronavirus outbreak labeled as a pandemic by the World Health Organization and the oil plunges in Asia as producers started a price war, what is the expected impact on Zambia’s economy? According to the Bank of Zambia Monetary Policy Committee Statement of February 2020, the recent outbreak on the Coronavirus (COVID-19) has presented a new downside risk to global health and its impact is yet to be fully assessed.
On the other hand, earlier in 2020, oil prices had fallen to almost $45 per barrel, the lowest for years. Back then, the combination of Shale oil production from the US and predictions about sluggish global demand growth, was to blame. Now the coronavirus, which has slashed Chinese oil demand more up to 20%, has added fuel to the fire. What does this mean for the African countries, and the Zambian economy in particular? “The fast-spreading virus could impact sub-Saharan Africa by as much as $4 billion in export revenue with oil and copper (Zambia’s main source of export earning) prices sharply down in recent months”, said the Overseas Development Institute (ODI). Globally, losses from trade revenue could rise up to $360 billion, according to the institute.
In addition, economically, the effects have already been felt – demand for Africa’s raw materials and commodities in China has declined and Africa’s access to industrial components and manufactured goods from the region has been hampered. This is causing further uncertainty in a continent already grappling with widespread geopolitical and economic instability. With South Africa having just reported its first cases of COVID-19, Africa is beginning to feel its full impact and plans to control and manage the humanitarian challenges of the virus are underway across the continent and also in Zambia.
According to ratings agency, Fitch, the Coronavirus outbreak will have a downside risk for short term growth for sub-Saharan African growth, particularly in Ghana, Angola, Congo, Equatorial Guinea, Zambia, South Africa, Gabon and Nigeria – all countries that export large amounts of commodities to China.
With so much uncertainty and anticipation in the atmosphere, the inflationary impact of the Coronavirus Pandemic cannot be attributed to a unique or specific outcome(s) as it has influenced numerous factors on the economic globe.