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BOZ forecasts impact of food prices on inflation

BOZ forecasts impact of food prices on inflation
By Joan Chirwa
Thursday June 19, 2008 [04:00]

ZAMBIA and other countries in the region will continue to suffer inflationary pressures owing to rising costs of commodities, Bank of Zambia (BoZ) deputy governor operations Dr Denny Kalyalya has said. And independent consultant Trevor Simumba has said huge unemployment has been created in the agriculture sector owing to the appreciation of the kwacha as production levels of export crops such as cotton have dwindled.

During an Economics Association of Zambia (EAZ) discussion on Zambia’s inflation and the foreign exchange in Lusaka on Tuesday, Dr Kalyalya said Zambia had not been spared by rising food prices and it was likely to impact on the country’s inflation rate despite having adequate food reserves.

Zambia’s current inflation rate has retreated to double digits at 10.8 per cent in May after maintaining a single digit rate for some months since the beginning of the year.

“The inflation target for this year is seven per cent but the recent inflation trends are above the projections,” Dr Kalyalya said. “These trends are not just in Zambia, they are evident in other countries as well because of rising costs of commodities.

Inflation therefore remains for Zambia and other countries in the region in the face of high global prices of oil, rising food prices and power outages. In terms of food, Zambia is a bit lucky because of the availability of food but the pressure is still mounting.”

Dr Kalyalya further said the strength of the local currency had given investors and other institutions confidence to increase their investments in the country.

“A number of institutions are issuing kwacha denominated bonds on the Lusaka Stock Exchange (LuSE) and this shows the confidence the institutions have in the local currency,” said Dr Kalyalya.

But Simumba said the current strength of the kwacha had forced a number of people out of employment, especially in the agriculture sector.

“We have seen huge unemployment in the agriculture sector, for example those involved in cotton, tobacco and flowers because of the appreciation of the kwacha.

Farmers could not continue growing some of the export crops because their earnings had declined. With this in mind, how are we going to see the rural sector growing the way it is supposed to grow?” asked Simumba.

The kwacha has significantly gained in the last few months, with current trading levels of between K3,250 and K3,300 per US dollar largely on account of increased dollar inflows from corporate institutions who are meeting their tax obligations.

Labels: BOZ, FOOD, INFLATION

posted by MrK @ 3:24 AM