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By The Citizen Reporters
Dar es Salaam/Kampala. Inflation in the EAC bloc will in 2012 rise further even as the region’s central banks continue to walk a tight monetary policy in different member states, Citi Bank has said in a new report.
The bank argues in the review titled East Africa Macro View that whether the monetary and fiscal policy committees decide to change the current interest rates or not, the problem of inflation could be here for the better part of this year. The Citi’s macroeconomic outlook differs with that of the government in Tanzania, which said early this week that it expects the year-on-year rate of inflation will fall to single digits by June."We are still hopeful that our economy will grow at around seven per cent and that inflation will be brought down to single digits by June, 2012," President Jakaya Kikwete said in a statement released on Wednesday.
Citi Bank says the relative currency stability that has been achieved in the region due to sharp monetary policies is not sustainable in the medium to long term since it has not been matched by a significant drop in inflation.
The report predicts that Kenya Uganda and Tanzania are headed into a period of persistently high inflation this year. Mr David Cowan, the bank’s head of research for Sub-Saharan Africa, said regional inflation is expected to remain high for the better part of the year and will start to significantly drop in the last quarter of 2012.
Despite Citi’s inflation pessimism for the region, some economists say that the EAC economic prospects look less grim this year than in 2011. According to the ministry of Finance and Economic Affairs, GDP growth in Tanzania is projected at slightly above seven cent in 2012, with higher growth over the medium term. “Despite power shortages, real GDP grew by 6.3 per cent in the first half of 2011, and most leading indicators remain favourable,” Finance and Economic Affairs minister Mustafa Mkulo noted in the government’s last month letter of intent to the International Monetary Fund (IMF).
“Accordingly, the Government is strongly of the view that the revised six per cent GDP growth projection for 2011 will be achieved and most likely surpassed,” he added. In March last year, the IMF cut its 2011 growth forecast for Tanzania to six per cent from 7.2 per cent, saying frequent power outages would hurt output while food and fuel prices could push inflation higher.
During the 2011 Annual Meetings of the World Bank-IMF in Washington, Mr Mkulo told journalists that Tanzania expects GDP growth of 6.7 per cent in 2011, down slightly from seven per cent in 2010 and from 7.4 per cent before the global financial crisis of 2008-2009.
There was as economic slowdown in 2011 right across the EAC bloc due to inflationary pressures and rising high fuel prices. Only Rwanda remained at the forefront of thriving economic stability while other EAC members faced economic hardships that led to double digit inflation and depreciation of the local currencies to the dollar.
The inflation rate in Rwanda was last reported at 7.4 per cent in November of 2011.
Burundi's annual inflation rate rose to 16.4 per cent in November from 13.3 per cent in October, due partly to higher food prices, the country's statistics board said mid last month. In Kenya, the consumer price index (CPI) increased by 0.74 per cent from 129.13 in November to 130.09 in December 2011. The overall inflation rate stood at 18.93 per cent in December compared to 4.51 per cent during the same month in 2010 and 5.42 per cent early last year.
The Citi Bank report has it that Kenya’s inflation is expected to be higher this year due to insufficient food production compared to its neighbours.
According to the National Bureau of Statistics (NBS), Tanzania's year-on-year inflation rate rose for the 13th straight month to 19.2 per cent in November from 17.9 per cent in October. Food and fuel price rises have been driving the year-on-year inflation rate higher in east Africa's second-largest economy, with no sign of respite.
Among food prices that increased in November were the national staple maize, rice, bread, wheat flour, cassava, meat, oil, Irish potatoes, sweet potatoes and sugar. NBS said the year-on-year inflation rate for energy rose to 39.2 per cent in November from 37.4 per cent in October.
Stripping out food and energy prices, the annual inflation rate edged up to 8.8 per cent in November from 8.5 per cent in October. “Inflation is projected to peak around September levels of 16.8 per cent, easing to 15.5 per cent by December 2011 and to nine per cent by June 2012. These projections assume good rainfall and favourable harvests in early 2012,” Mr Mkulo noted in the letter to the IMF.
Dr Honest Ngowi of Mzumbe University says that like last year, inflation will be among the key macroeconomic challenges for Tanzania in 2012. He argues that the cost of living will not ease unless the core structural issues are addressed in the supply side of the real economy.
According to him, the high rise in the inflation rate that was observed in 2011 will have many and far-reaching implications to national, corporate, household and individual budgets in 2012.
He says that the simple logic of inflation-budget variables relationship is that, the rise in inflation rate results into higher prices.
“This in turn erodes purchasing power meaning that one will be able to purchase fewer baskets of goods and services with the same income or budget outlay.”
Reported by Costantine Sebastian in Dar es Salaam and Rawlings Otini in Kampala
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