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Headline CPI surges to 19.2% y/y in December

January 4, 2021by Nicholas Kabaso0
  • Data released by ZamStats showed that headline inflation in Zambia accelerated for the fourth straight month in December, coming in at 19.2% y/y from 17.4% in the month prior. This was the fastest pace of growth since August 2016 and was mainly attributed to an increase in food price inflation. Food price inflation rose to 20.2% from 16.8% in the month prior. Non-food inflation meanwhile came in at 18.1% from 18.2% in November. Overall inflation remains elevated in Zambia, and along with deep-seated fiscal challenges, room for the central bank to support an economy struggling amid the coronavirus pandemic is limited going forward.
  • Meanwhile, Zambia’s trade surplus widened to ZMW 7.2bn in November from ZMW 6.5bn in the month prior. A breakdown of the data shows that the surplus was primarily attributable to a more pronounced increase in outbound shipments than inbound shipments. Specifically, ex-ports rose by 7.0% y/y  while imports rose by 4.7% y/y.
  • On the international front, as it is the start of the month, the usual release of the final manufacturing PMIs by Markit for the previous month, is scheduled. In so far as the US is concerned, the data is expected to show a solid expansion only mildly softer than the November reading. The data however still points to a recovery that is under way, although one that may not be sustained into Q1 as infection rates rise and the government once again seeks to implement further lockdown restrictions.
  • Politically speaking, the market will also be watching developments surrounding this week’s runoff vote in the US state of Georgia, which will determine control over the Senate and, consequently, the fate of President-elect Joe Biden’s policy agenda. It is a very tight contest and with Georgia already falling the way of the Democrats in the most recent election for the first time in a generation, Republicans are quite fearful of losing the two Senate seats, giving the Democrats a clean sweep of Congress and the White House. From a market point of view, a Republican win would be seen as a better result, given that the Senate would then hold the potential to keep any runaway shift in socialist policies in check.
  • Furthermore, Congress will vote on Wed on whether to ratify the Electoral College vote and ensure that Joe Biden becomes the next presi-dent to be inaugurated on the 20th Jan. Although there may be some Senators that will seek to support Trump, their effort to overturn the election is considered a long-shot. It is however an important event given Trump’s reluctance to concede defeat.
  • The USD starts the week on the defensive and while the trends in the USD are broadly lower, there are enough risk events scheduled for this week to keep investors relatively cautious in their trading behaviour, but with a USD bearish tilt. Selling USDs at the start of the year may well prove a theme that persists throughout the remainder of the year as investors seek to unwind some of the USD’s own overvaluation against the majors.
  • The final trading session of the year saw the Kwacha remain on the back foot, reaching a fresh high. Moreover, the local unit was Africa’s second worst-performing currency against the USD, down by nearly 44% for the year as Zambia’s worsening fiscal dynamics and deeply negative real rates weighed.  As noted before, in the absence of clarity on debt restructuring and the implementation of reforms, the Kwacha might struggle to rebound in the near-to-medium term.

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Nicholas Kabaso

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