Yearend inflation in Africa’s celebrated hotspot Zambia ebbed an aggressive 290 basis points to 16.4% according to the Zambia Statistics Agency (ZSA). The biggest driver of the sag in consumer price index (CPI) was a 550 bps fall in food prices to 19.9% backed by an infinitesimal decline in non food prices of 0.1% to 12.1%.
Zambia’s has in the last three months taken a positive cue from subsiding political risks and brighter sovereign posture manifesting in currency appreciations fueled by sentiment boosts and an increased demand for government securities from offshore players seeking higher real yields. This has increased the stock of dollar flows into the economy positively impacting the currency price thereby easing cost push effects in general. This has added onto base effects to ease inflation trajectory.
ENERGY PRICE RISKS YET TO PRICE IN
Despite a decline in inflation, risks to consumer price index in the red metal producer remain high as petroleum prices scaled 25% higher in the month of December after the Zambian authorities suspended subsidies in a move aimed at reallocating its fiscal purse for greater production possibilities. This move was in readiness for an International Monetary Fund program which the Washington based lenders Staff Mission team reached consensus with Zambia’s MinFin. Inflation is said to be a concern for 2022 not only for Zambia but the global village as a whole. On one end the effects of Omicron variant are not clear but historically, the more acute a pandemic the greater the impact on the economy hence the greater the likelihood of central bank intervention through liquidity injections which have proven inflationary. Excessive global inflation currently is an autopsy of the central banks market interventions to stimulate growth.
Subsidies are expected to be lifted on power (electricity) which when effected will widen the cost burden on citizens. Despite a 25% hike in fuel petroleum products remain zero rated for value added tax (VAT) which presents further latitude for additional hikes if subsidies are to be 100% exterminated.
PREMIUMS ON GOVIE RISK JUST NARROWED
In tandem with an inflation easing trajectory, the government curve has compressed significantly, in-fact fallen faster in velocity than the inflation rate sending government yields underwater. A post election bond bump era supported by an excessive attraction to government securities backed in part by a brightening sovereign posture has lowered government security yields. However yield curve compression steam is fading as the US Fed tapering program could commence to reign in on inflation. The last bond auction of the year saw the bond yields sag 55-115 bps a softer decline that three months ago.
The Kwacha Arbitrageur