The Bank of Zambia – BOZ, has noted that the expected increase in Agro production of foods in the 2020 harvest season is projected to mitigate the high inflation which had mainly been coming from the rise in the price of food items on the market.
During the Monetary Policy Committee update held on February 19, 2020, at the Bank of Zambia Head offices attended by the Zambian Business Times – ZBT, BOZ governor Denny Kalyalya explained that inflationary pressures continued to mount in the fourth quarter of 2019, driven mainly by a further sharp increase in prices of maize grain and related products and the significant depreciation of the kwacha against the US dollar.
Dr. Kalyalya said the increase in maize prices was mainly due to relatively low production and supply from the 2018/2019 season. Subdued supply amidst heightened demand for foreign exchange relating to the importation of electricity, petroleum products, and agricultural inputs were the key drivers of the depreciation of the kwacha in the fourth quarter.
“Annual overall inflation increased to an average of 11.1% from 9.5% in the third quarter. Average food inflation rose to 14.0% from 10.7 % while non-food inflation slowed down to 7.8% from 8.3%. In December 2019, overall inflation was 11.7% and it averaged 9.1% for the year as a whole”, said Dr. Kalyalya.
The BOZ governor further announced that in January 2020, inflation rose further to 12.5% following the upward adjustment in electricity tariffs and fuel pump prices. Inflation is projected to remain elevated over the earlier part of the forecast period and thereafter decline towards the upper bound of the target range of 6-8%.
The governor said underlying this projection are the effects of on-going electricity supply challenges and increased external debt service payments on inflation through the expectations and exchange rate channels.
He added that the upside risks to the inflation outlook include further increases in the prices of maize grain and related products, the sound round effects of the increases in fuel and electricity prices and slower progress on fiscal consolidation.
Analysts contend that the normal to above normal rainfall currently being experienced across the country is expected to result in better food harvest, boosting supply and expected to result in downward pressure on food inflation. The country staple food, Maize prices have already surged downwards for fresh cobs of maize selling on the fresh and green markets.
Energy production in Zambia has further being boosted by the increased flows in the major rivers, with the Zambezi River Authority – ZRA stating that the water levels have increased by about 25% from the same time last year, which will boost hydro power production.
