Consumer Price Index (CPI) in Africa’s second largest copper hotspot Zambia rose 170basis points to 15.7% as lagged effects of March priced into Aprils print. Announcing April inflation, the Zambia Statistics Agency revealed that consumer price index rose to 15.7% an increase attributed to food prices ebbing higher coupled with amplified effects of currency depreciation on non-food component of the index impacting motor vehicle and solid fuel importations.
Inflation environment remains elevated. The upper bound of Zambia’s inflation target of 8% will remain breached in the medium to long term as the cost environment remains elevated from higher energy prices and currency weakness. However in the short term, the copper producers projected maize bumper harvest will marginally détente the food price component. This will highly likely cap the jump to 16-18%. The inflationary environment could on the face of it trigger tighter monetary policy but for the depressed growth environment that requires expansionary intervention, the central bank will have to prioritize growth at the expense of the pricing environment.
Central bank stimulus – inflationary. The K10billion life – line in Medium Term Lending Facility could exacerbate demand pull inflation and could further fuel cost push inflation as injecting liquidity could weaken the currency.
Higher inflation erodes premiums for investing government security and could signal an interest rate risk adjustment for yields on bills and bonds.
The Kwacha Arbitrageur and Cynical Investor.