THE Zambian economy has potential to bounce back to single digit inflation levels, Economics Association of Zambia (EAZ) Executive Director Alexander Chileshe has said.
Last week, the Central Statistical Office (CSO) announced that the annual inflation for the month of March shot up to double digits by 0.4 per cent to 10.2 per cent from the February 9.8 per cent.
The increase in inflation was attributed to increases in the prices of food products and public transport during the month under review.
But Mr Chileshe said in response to a Press query that Zambia had potential to get back to single digit inflation during the coming months.
“This has been demonstrated before in 2007, 2008 and 2009. What is most important though, is ensuring that we have stability in inflation levels because frequent fluctuations have significant impact on a number of things such as the value of our money and rates of borrowing among others.
“Stability in inflation will breed more confidence in the financial sector which is a good thing for all of us,” he said.
Mr Chileshe said Zambia had long known that the results of the agriculture season had an impact not only on inflation levels but also on poverty saying sustained investments in the agriculture sector well and efficiency in the sector coupled with sufficient incentives for private sector involvement was the answer to mitigate high inflation.
“Zambia has good whether all year round and can grow almost anything. It has neighbouring countries that would be too glad to buy Zambian agricultural produce, why don’t we take advantage of this?
“The increase in transport costs is obviously as a result of the cost of fuel,” he said.
In the short term, Mr Chileshe said the Government must closely examine and rationalise the costs incurred between Dar-es-Salaam and Indeni.
“Are there some costs that can be removed? Can the organisations or institutions involved in the energy sector operate more efficiently? In the long run, Zambia needs to turn to developing its bio fuels capacity.
“But we must remember that the management of inflation is not an end in itself but it’s only a vehicle and has a broader and much more important goal of reducing poverty and improving the livelihood of the citizens. So whatever we do, this should be the focus,” he said.
He said the outlook of the Zambian economy in the coming months still looked well as long as the country stuck to strict management of the macro economic fundamentals that seemed to have yielded some dividends so far.
The Zambian economy maintained single digit inflation from December 2009 to February 2010 but inflation rose to double-digit status in March 2010.
The Government’s macroeconomic objectives in 2010 are to exceed five per cent growth and to reduce end-year inflation to 8.0 per cent as well as to limit domestic borrowing to 2.0 per cent of Gross Domestic Product (GDP).
[Times of Zambia]
Do these figures matter to that child on the streets without an education, parents, social services, a future and shelter?:-?
Yes, lima # 1 they certainly do. They are a reflection of the rate of sustained increase in prices. So they show how much transport, food, rentals costs have changed
If I remember very well the rise in food and transport prices was caused by the fuel price hike. I am sure if we invested in bio fuel we will be able to reduce food prices. I know some economist though who is on record that a switch to bio fuel will cause a rise in food prices ( Chibamba Kanyama on BBC in 2008). I do not agree with him. I believe bio fuel will quicken the pace of production in this country.
On GDP growth of 5% a lot need to be done in improving educational levels to those entering the productive sector. If these have to replace the ageing workforce, they have to have good skills to sustain the economy so as to keep up with high productivity. Else what ever little we will produce and earn revenue will go towards debt repayment – in oder to reduce poverty.
One would expect an EAZ Director to be more articulate than this. He has not explained why he expectes inflation to be lower. If he wants to know the cost input to fuel prices in zambia, he should talk to exprts in the Industry, or ERB.
In the main, global oil prices are still going up. In the UK, fuel prices go up every day. It’s possible that the next crude oil shipment into Indeni will be at a higher price, meaning fuel prices will go up again, unless GRZ subsidizes them. Subsidies should be discouraged as they are a waste of money.
Instead of managing inflation, lets ramp up agricultural production so we dont import food but instead export.
Also let address factor in the non-food inflation category, which constitute the most of the 10% inflation is Zambia.
Lets be smart.
My take is that while ‘advanced’ nations can control inflation through monetary policy, our near cash economy cannot. By changing interest rates, economies of more advanced nations which use significant amounts of debt can decrease or increase money supply starving the economy of or feeding it with money. Our problem is the structure of our economy. The supply side is very limited we rely on imports for what we can produce ourselves and this makes us prone to imported inflation? So the EAZ should be saying Zambia should invest in production capacity that will drive down costs. If we look at Cement production, Chilanga has a near monopoly and can dictate prices. More competition is needed. Govt bonds to revive dormant industries anyone?
Lima Jazz Band, ” Do these figures matter to that child on the streets without an education, parents, social services, a future and shelter? ”
Not one bit. The ideology behind the ‘single digit inflation’ mantra is that it creates a stable environment for FOREIGN investment. That is all. It is part of the economic ideology of neoliberalism. However, we can all look around and see what doing everything to keep inflation low has brought us. Where is this ‘economic development’ – nowhere.
What we need is demand side economics, and no more supply side economics (foreign investment). We need to raise the income of the average person as high as we can.
* full employment (a horror to neoliberals, because it raises wages and therefore increases their cost)
(Continued…)
* Works projects and orientation to capital investment in manufacturing, agriculture and infrastructure
* Universal access to education and healthcare (which again raises health and future income)
Will this raise inflation – yes, and it will be a very good thing, because raised inflation will represent future capital creation (not present day inefficiency and ‘consumption’).
The big flaw of supply side economics is the idea that you can stimulate the economy by producing more. In fact, the only way to stimulate the economy is by increasing demand – it is the disposable income of citizens that creates the actual demand for goods and services.
The economy is pulled by demand, not pushed by supply.
No 7. fact that huge imports for basic things like peanut butter means the demand for those products exists. So y not substitute the imports with local products which will increase disposable income and lead to more demand. Such a strategy would only be temporary but will stimulate demand for raw inputs which i think we have sufficient of. This the creates the value add to our products and increase demand as suppliers’ll have more disposable income. Let’s take mpilu for example, attractive packaging will create 2 more processing jobs – for the pack materials and the packer. By branding the seller gets a higher price short run and more disposable income to demand consumables. Demand and supply r different side of 1 coin. Bottom line is we need more money to circulate within our economy.
Kamanga, ” No 7. fact that huge imports for basic things like peanut butter means the demand for those products exists. ”
I am all for import substitution – but that takes import tariffs. Is this neoliberal ‘free trade’ government going to go for that?
From’ The Crash of 2008 And What It Means’ by George Soros, chapter Globalization:
” The globalization of financial markets was a very successful market fundamentalist project. If financial capital is free to move about, it becomes difficult for any state to tax it or to regulate it because it can move somewhere else. This puts financial capital in a privileged position. Governments often have to pay more heed to the requirements of international capital than to the aspirations of their own people. ”
This is fundamental and goes directly to why there are no tariffs that would encourage substitution, or why this government is chasing after single digit inflation. We need to take this country and this economy back.