Zambian Inflation at 3-Year High Increases Chance of Rate Hike

(Bloomberg) -- Zambia’s inflation rate surged to the highest level in almost three years in August, increasing chances that the central bank will continue tightening.

Consumer inflation accelerated to 9.3% from 8.8% in July, Iven Sikanyiti, assistant director for social statistics at Zambia’s statistics agency, told reporters Thursday in the capital, Lusaka. That’s the highest rate since October 2016. Prices rose 0.7% in the month.

Key Insights:

• Governor Denny Kalyalya warned last week that the central bank could raise interest rates again if inflation doesn’t return to the target band of 6% to 8%. The Monetary Policy Committee kept the key rate on hold after bucking the global trend in May by tightening by 50 basis points.
• Food costs are surging in the southern African nation amid the worst drought in almost four decades and Zambia’s biggest farmer-lobby group is opposing any efforts by the government to introduce price controls.
• Inflation is projected to remain above the central bank’s target band for much of the forecast horizon, which covers the next two years. Zambia is also battling high levels of government debt and fiscal deficits, which are likely to feed through to inflation via a weakening currency.

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