Zambia’s annual inflation rate fell to 6.1 percent in September, extending its decline for a ninth consecutive month and strengthening expectations that the central bank could cut interest rates for a fourth time.
The latest figure, released by Zambia’s Central Statistical Office, was down from 6.2 percent in August and marked the lowest inflation rate since February 2018. The decline was supported by slower food price growth, while non food inflation remained unchanged.
Food inflation eased to 5.8 percent in September from 6 percent a month earlier, while non food inflation held at 6.6 percent. A relatively resilient currency and temporary tax measures have also helped contain price pressures.
The easing inflation gives the Bank of Zambia more room to continue reducing borrowing costs as it seeks to support economic activity without reigniting price pressures. The central bank has already cut its policy rate three times this year as inflation has moderated.
However, the inflation outlook could face some pressure as temporary tax measures expire. The suspension of fuel taxes and zero rating of value added tax are due to end on September 30, potentially increasing costs in some parts of the economy.
On a monthly basis, consumer prices rose 0.4 percent in September, the fastest increase in five months, compared with 0.2 percent in August.
Food and non alcoholic beverages, which account for 54 percent of Zambia’s consumer price index, remain the largest component of household spending. Housing and utilities account for 11 percent, while furnishings, household equipment and routine maintenance account for 8 percent.
Transport makes up 6 percent of the index, while miscellaneous goods and services account for 5 percent and education 3 percent. Alcoholic beverages and tobacco, recreation and culture, communications, health, and restaurants and hotels make up the remaining 5 percent.
The continued moderation in annual inflation provides further scope for monetary easing, although policymakers will have to weigh the impact of the expiring tax measures and the recent pickup in monthly price growth before deciding on the pace of further rate cuts.