Inflation surprise vindicates BoZ

BoZ Vindicated as Inflation Tames

Nov 30, 2018

The Bank of Zambia resisted hiking rates this month surprising commentators given recent currency weakness, which they say added to inflationary pressures.

Inflation this month came in below the upper band of BoZ corridor (6-8%) at 7.8%.


Undoubtedly, the recent kwacha weakness was behind the month on month inflation of 0.9%.

Inflation rate in Zambia averaged 9.76 percent from 2005 until 2018, reaching an all time high of 22.90 percent in February of 2016 and a record low of 6 percent in December of 2011.

Brighter spots

While pundits will point to currency weakness, the twin deficits, and poor sentiment as signs of worry, there are brighter spots that can bear down on future inflation expectations:

1. Oil, a big determinant of Zambian inflation, has fallen below $60 per barrel from a recent peak of $86 in early October.
2. Copper has withstood (for now) USA-China trade spat giving support to the country's coffers. China is the major buyer of the metal, accounting for about 60% of world demand.
3. The flow of hot money that pursued yields has largely already left giving support to the currency.
4. An austerity budget is due to kick-in in 2019 assuming actions flow.
5. The cost of money was not increased by BoZ this month supporting the credit markets.
6. Stability in USD:ZMW rate since mid September shock rise albeit at a higher rate of K11.80-12.00.

BoZ expects inflation to be within their corridor by year end and given these six bright spots you can see why.