Headline inflation for first month of 2022 in Africa’s red metal hotspot ebbed 130 points to 15.1% as reported by the Zambia Statistics Agency (ZSA). This is the lowest consumer price index has seen in the last 2 years exactly supported by stronger base effects despite a 25% scaling up of petroleum products. Food prices continued to ease with January food inflation steeply falling 300 basis points to 15.1% offsetting a 60 points uptick in non food prices.
The CPI fall, seemed against all odds given effects of a petroleum price hike on 16 December 2021. However it is about a dry point of construction that fuel prices were adjusted higher in the festivity period when business activity was muted significantly as most manufacturers where on industrial break and only resumed operations in the second week of January. The market could likely see stronger energy price effects in the coming months as producers do effectively transmit cost push effects to consumers. Other upside risks to inflation in the medium term include currency depreciation as markets remain edgy amidst debt restructure clarity in expectations and a potentially electricity price hike in 1Q22 as part of a subsidy extermination initiative by the MinFin in its quest to optimize resources to effect optimal growth possibilities.
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For local markets, government securities just got 130 bps attractive as an ebbing trajectory in a rising yield curve just widened premiums for investors. However for offshore players the US Feds intent to hike rates this March will keep them away from emerging market assets which could be double hatrick pressure for currencies from a stronger dollar environment and lack of new money flows from offshores rerouting liquidity back to the west.
Logistics and food inflation will continue to transmit pressures global to net importing nations, Zambia inclusive. Zambias central bank targets to align inflation back within the 6-8% target thresholds in the next 6-8 quarters. Inflation trajectory will play a key role in determination of monetary policy posture for Zambia. The first rate decision meeting is scheduled for February at which the committee is likely to keep rates tad should inflation continue to ebb.
The Kwacha Arbitrageur
