Stanbic Bank expects Inflation to pick up again in December

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Stanbic Bank Zambia Headquarters
Stanbic Bank Zambia Headquarters

Standard Bank which trades in Zambia as Stanbic Bank says it expects the country’s annual inflation rate to pick up again in December 2016 after it dropped to single digit in November.

In a note to investors, Samantha Singh, an analyst at Standard Bank Group Ltd said the November headline inflation fell to 8.8% year on year was marginally higher than the bank’s expectation of 8.7% year on year, from 12.5% year on year in October.

Ms. Singh said the decline in inflation was largely owing to favorable base effects and lower food inflation.
“Food inflation fell to 9.8% year on year from 15.6% year on year in October while non-food inflation fell to 8.3% year on year in November from 9.0% year on year in October. We expect inflation to pick up again slightly in December, and thereafter remain in high single digits ” she said.

“However, higher fuel prices and transport fares pushed the headline CPI by 1.5% on a month to month basis from 0.5% month to month in Oct. The retail price of petrol was increased by nearly 39% to 13.7/litre, while the price of diesel was raised by 33% 11.4/litre) on 14 Oct as part of subsidy reform.”

She said despite an increase in fuel tariffs and likely increases in electricity tariffs, the bank expects headline inflation to be anchored by a steady decline in food inflation.

“Subsidy reform will initially be felt in the non-food components of the CPI basket, namely housing, water, electricity, gas and other fuels (which make up 11.4% of CPI) and transport (5.8% of the basket). On a month to month basis the transport sub-index surged to 10.7% month to month in Nov from 0.6% month to month in Oct while housing, water, electricity, gas and other fuels sub-index increased by 1.9% month to month from a 0.1% month to month decline in Oct,” she said.

On the currency market, Ms Singh said since the highs close to 11.50 in the first few months of the year, upside pressure on USD/Kwacha has been relatively muted.

She said the bank however expects that a slow grind higher is on the cards on a multi-month basis as corporate activity picks up after the election period.

“We expect that USD/Kwacha will trade in a range of 9.8 – 10.3 over the short term. The government has indicated its intention to negotiate a funded program with the IMF. Given our views about there being scope for further fiscal consolidation in the 2017 budget, it is highly probable that such negotiations would lead to more substantive fiscal consolidation that would support the BOP and the Kwacha.”

She added, “In such a scenario, it is highly probable that with inflation declining further, yields would decline meaningfully. The BOZ, which has borne the brunt of tightening macroeconomic policy, would ease the policy stance. We maintain that an easing cycle will most likely begin late in Q1:17 once the BOZ ascertains the impact of further subsidy reform on inflation.”

6 COMMENTS

  1. +2
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    Uko, mwa Lungu the economy is artificial. More hunger, poverty with load shedding.
    The Skeleton Key
    ~206~

  2. +4
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    Why do economists hope for the worst of our economy. Oppositions will actually want to see a total collapse of the economy. Just thinking loud.

  3. +1
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    Actually, inspite of the cost-push inflation there being exerted by the removal of subsidies, the lowest annual rate of inflation might still be expected not to be reached until March, 2017. This is because of the inflation formular basis effect.

    The lower inflation index rate does not in any way represent improvement in the cost of living. The Director of Statistics has infact pointed out that the month-on-month Iflation for the month of November, this onth, was higher than that of October, at 1.5% and 0.5%, respectively, representing increase in prices!

  4. +3
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    Very few comments here! this is were the typical PF cadres tend to skip through, the article is above their level of comprehension.
    This is territory for a few “learned” people like me.

Comments are closed.