Country Report Zambia May 2011

Outlook for 2011-12: Inflation

Strong domestic food production will offset higher oil prices, allowing inflation to moderate. Domestic food production will remain the main influence on prices; food accounts for more than 50% of the consumer basket and Zambia's landlocked status and poor transport infrastructure inflate the price of food imports. The supply of the staple food, maize, is expected to exceed demand in 2011-12 as farmers continue to receive generous subsidies. Electricity prices are expected to increase by around 15% in 2011 and 10% in 2012 as tariffs are raised towards full cost-recovery levels, although this is less rapid than in 2009-10, when tariffs went up by 30% per year. Imported inflation will rise as the kwacha depreciates slightly. Oil prices are forecast to grow by 27% in 2011 and to fall by 16% in 2012. In line with these trends, non-food inflation is likely to remain in double digits. Overall, average inflation is forecast at 8.4% in 2011 and 7.2% in 2012. Prices could climb far more quickly if drought were to reduce food production. There is one other caveat here: Zambia's inflation data are based on consumption patterns in 1994, as the consumer price index has not been rebased since then. However, as income levels have grown, food's share of the consumption basket will have fallen. Food inflation is currently much lower than non-food inflation-in 2010 the former was 5.3% and the latter 11.8%-so inflation estimates could well be understating actual increases in the cost of living.

© 2011 The Economist lntelligence Unit Ltd. All rights reserved
Whilst every effort has been taken to verify the accuracy of this information, The Economist lntelligence Unit Ltd. cannot accept any responsibility or liability for reliance by any person on this information
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