The Central Statistics Office (CSO) is expected to announce Zambia’s August inflation this week. Our expectations are that consumer price index will surpass the November 2016, 9% mark fueled by energy bottlenecks and currency weakening effects manifesting in cost push pressure on the price index. Zambia currently grapples with energy’s poverty and food security risks exacerbated by drought effects of weak rainfall for 2018/2019 season.
Currency pressure has been a consequence of increased asset sell-off pressure on the back of waning investor sentiment as offshore players and investors question Zambia fiscal consolidation efforts. Last Friday’s 23 August, Standards and Poor’s lowered Zambia’s credit assessment to CCC+ with negative outlook on the back of balance sheet vulnerabilities, which further weighs investor sentiment. However credit default spreads on Zambia’s dollar bonds did not widen much as markets had already priced in fiscal risks when Moody’s and Fitch downgraded the copper producer earlier in the year. These key risks to growth have cost the Zambia, an anemic growth forecast of between 1.5%-2.2% for 2019 (IMF/World Bank). We expect CPI to print between 9%-9.2% from the current 8.8% levels in breach of the 8% upper bound of the central bank range.
Should inflation spiral upwards, the central bank could consider hiking rates in it’s November rate decision meeting. In the interim widening inflation could trigger tighter monetary policy on the money supply side. I light of the upside pressure on inflation, Neville Mandimika a Rand Merchant Bank Economist and Fixed Income Analyst in a commentary, questioned wether 50 basis point adjustment at the May MPC was adequate to curb the pressures.
Business pulse readings by Markit Economics/Stanbic PMI are expected slightly deeper in contraction to between 42-44 from previous print of 44.4 in July. Lack of liquidity, input inflation and an elevated cost environment are expected to be key drivers of the weak private sector pulse in August. PMI readings are due on 04 September.
Compiled by Business Telegraph Research Team
