The Good, The Bad And The Ugly: 10 Years Of Inflation Under The PF
Over the last 10 years, inflation in the country has increased by almost 15%, from 6% to 22.8%. As a result, the cost of living has increased dramatically under the current government.
For comparison, the average inflation rate in Sub-Saharan Africa in 2021 is half of this at around 10.5%.
Within just 6 months of being in power, the Patriotic Front (PF) had increased inflation by 3%, with food prices seen to sky-rocket at a similar time as a result of the Kwacha depreciating against major currencies.
At the end of 2020, the inflation rate climbed to 17.4%: the highest it had been in four years. A 5.4% increase in the space of just one month, from December 2020 to January 2021, subsequently drove inflation to its highest rate in 20 years.
This has all happened all under the watch of the current government, who set the central bank a target of keeping inflation to between 6% and 9% for 19 months. The Bank of Zambia Governor Christopher Myunga said that inflation is forecast to remain above this range for the next two years if nothing changes.
Subsequently, the price of goods has increased, with no sign of wages increasing at a similar rate to ensure these products remain affordable.
What has caused this inflation?
In 2020, the Kwacha lost a third of its value against the dollar, making it the worst performing of all currencies on the continent. Zambia’s dependence on exports such as copper and sugar mean that when the exchange rate of the Kwacha goes up as a result of a decrease in currency value, inflation is a natural outcome.
Not only did this drive-up prices, it also made the cost of borrowing more expensive, with the Kwacha’s decline in value occurring partially as a result of the large amount of debt which the government holds.
International standards require that debt is no more than 60% of a country’s GDP, however Zambia’s debt is due to be worth more than 100% of the country’s GDP for the second year in a row.
The country’s recent debt default caused matters to worsen, with non-food prices rising by approximately 18.2% in the months which followed.
Examples of inflated prices
The last 10 years has seen price increases such as:
- Mealie meal increase from K45/25kg in 2011 to K195/25kg in 2021
- Diesel increase from K9 in 2011 to K17 in 2021
- Bread increase from K5 in 2011 to K9 in 2021
In the space of just one month, from December 2020 to January 2021, the cost of food increased by 5.4%. This was largely driven by fish, meat and cooking oil prices.
From March to May this year, the Jesuit Centre for Theological Reflection’s (JCTR) Basic Needs and Nutrition Basket rose from K8,644.50 to K8,743.89. A similar trend was also seen in 2020 when the cost of this Basket also rose. The price of non-food items also increased during this period, for example charcoal is now K14.80 more expensive than it was in March.
In October 2015 the government went so far to hold a National Day of Prayer to try and counteract its economic crisis, driven by increased inflation. Since then, inflation has only become worse.
What was inflation like before the PF took power?
From 1994 to 2010, the prices of roller and breakfast maize meal declined by around 40%. Inflation was both low and falling as of 2011, declining from 17.2% in 2003 to 7.9% at the end of 2010.
In 2010 the World Bank named Zambia as one of the world’s fastest economically reforming countries, subsequently re-classifying the country as Lower Middle Income. The bank was pleased with the “stability” of the Kwacha at the time which helped reduce inflation rates to single digits.
The decreased inflation rate is attributed to a monetary policy which was put into place. A favourable crop harvest supplied the country with plenty of food also provided the country with a good placing to reduce the inflation rates.
Strong economic performance in 2011, with a growth in GDP, was supported by the low rate of inflation. This was commended by the International Monetary Fund (IMF).
What is the consequence of this inflation?
The increased inflation rate, coupled with a rapidly depreciating currency, has caused many Zambians to be tipped deeper into poverty. In a survey conducted by the World Bank, when asked the primary reason for household food insecurity the majority of respondents said that an increase in prices was the issue. Inflation has eroded the wages of the country’s workforce, resulting in pay checks becoming insufficient to meet the worker’s family’s needs.
In business, inflation is more preferable if it is low and stable, rather than the recent inflation seen which has been in the country which has been very high and unstable. Inflation above 3 or 4 percent may cause a rise in costs and uncertainty in business. When inflation is higher than that in other countries, it also makes these businesses less competitive on the global market.
Inflation also has a wider impact on the country’s economy. It causes uncertainty about future prices, exchange rates and interest rates which will increase risk among potential trade partners which is likely to discourage trade.