Africa’s second largest producer of copper Zambia, will effective midnight of March 31, 2022 scale its pump petroleum prices higher by a fifth. According to a communique by the Energy Regulation Board (ERB) released on its website, geopolitical tension between Russia and Ukraine has propelled crude prices higher offset in part by a marginal Kwacha appreciation in the period to force the second pump price hike of the year 2022. Petrol and low sulphur diesel pricing for April will now be K4.5 and K4.68 higher than previous month to K26.5 and K26.22 per liter respectively.
Being the second largest crude producer globally and part of the OPEC+, the Russo – Ukrainian war has set in motion, a brace of pressure on both the supply and demand side all widening Brent prices to highs last seen in 2008. However global crude prices have seen a decent sag in the week to $108 a barrel as the US has committed to offloading close to a million barrels daily for 180 days to stabilize prices.
A MARCH INFLATION SAG AND ERB FUEL HIKE
The energy regulators announcement coincides with Zambia Statistics Agency’s headline inflation release citing a further ease in Consumer Price Index (CPI) for March to 13.1% from 14.2% previous month as food prices extend an ease. Cost push inflationary effects are expected to offset the downward trajectory seen over the last few months should oil prices remain bullish on the international markets in light of both geopolitics and strong demand from global economies reopening post pandemic. Analyst argue that the chaotic state of the world could negate growth achieved by most nations as currencies remain under pressure and energy prices balloon.
ASSET SELL-OFF PRESSURE IS HURTING EM CURRENCIES
Rising crude prices are compounding the asset sell-off pressure quagmire as more players flee to safety in haven assets such as dollar denominated instruments and gold. These are assets whose appetite does climb in periods of uncertainty. This behavioral shift leaves emerging market currencies under pressure on account of insatiable demand for dollars to breed local currency depreciation. This for net importing jurisdictions like Zambia marks the genesis of inflationary pressure and could signal a potential rate hike cycle. Six rate hikes forecast in 2022 will strengthen the dollar environment as evidenced by a very strong USD index north of 98, levels close to 102 seen in the acute pandemic period.
Other key concerns pointing to potential food security risks include erratic to excessive precipitation that has damaged crops and is projected dent the maize harvest. The energy regulator last year announced a subsidy scrap on petroleum products in its quest to reorganize its fiscal purse to maximize economic growth possibilities. Further the ERB has implemented a monthly price review that allows for cost reflective fuel prices in the absence of subsidies. At the current trajectory, should the war persist, it is likely that pump prices may further trigger north of current levels and the inflation spiral could compound further.
These developments are likely to weigh manufacturing pulse as measured by Purchasing Managers Index currently a few points above 50 (expansionary). The Chinese economy has already led the curve by posting a contraction for March at 49.5 a strong indication of ebbing demand for Africa’s exports. All this points to the state of the global economy amidst metamorphosis of risks weighing appetite.
The Kwacha Arbitrageur