Country Report Zambia April 2010

Outlook for 2010-11: Inflation

Inflation continued to come down in the final quarter of 2009, reaching single digits in December for the first time in 21 months. The factors behind this downward trend-mainly lower food prices-should continue into 2010, as the outlook for domestic food production looks strong. Greater kwacha stability will also contribute to lower prices, but an expected increase in the oil import bill, as prices increase, will limit more significant falls in inflation. Overall inflation is forecast to average 10% in 2010. Inflation should fall further in 2011, to 9.3%, as strong food production continues and fuel prices stabilise. However, this could be undermined if fiscal policy is loosened significantly ahead of the 2011 elections. In addition, Zambia remains susceptible to drought, as agriculture is predominantly rain-fed, and this would quickly affect food prices.

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