Inflation forecast to cross 20% mark

The country’s annual inflation rate is likely to cross the 20 per cent mark due to recent power tariff hike and high food prices—the two main components that heavily influence consumer price index.

The new rate for January, which is expected to be announced today by National Bureau of Statistics (NBS), is likely to go beyond the 19.8 per cent last December by far.

Economists have it that the power tariffs, which went up by 40 per cent, have psychological effect as traders increase prices, blaming the tariffs, without taking into consideration the actual costs. 

They cite cement prices that went up since last month to between 15,000/- and 17,000/- from 14,000 and 14,500/- depending with locations in Dar es Salaam. But, the new power tariffs started this month.

Mzumbe University’s Dar es Salaam Business School Senior Lecturer, Dr Honest Ngowi said, he saw no reason why January inflation should not climb to over 20 per cent. “

Dr Ngowi
The power hike has far reaching effects…in most barber shops and women saloons prices have gone up even before the usage of new tariffs starts, this is psychological.”

Food and electricity have a heavy weight in calculating the consumer price index and last month prices for foods went up drastically especially in urban centers.

The price of rice grade one shoot from 1,800/- to 2,500/- a kilogram while the price of beans where almost at per with that of rice. The price of sugar was also between 2,000/- and 2,500/- from 1,700/- and 1,800/-and maize flour was stable at 1,000/- a kilogramme.

International Monetary Fund (IMF) forecast inflation to drop to a single-digit by next June. But, figures show that the rate has been on a steady increase for the last 16 months.

Should the inflation reach 20 plus per cent, it will erode consumers’ purchasing power thus reducing aggregate demand, ultimately cutting down production of goods and services in the economy.

“It will reach to worse scenario when employees start demanding pay rise to factor in inflation gap due to life hardship…if you combines with high cost of borrowing, things are heading from bad to worse” Dr Ngowi said.

According to the Confederation of Tanzania Industries (CTI) recent report of state industry in 2010, the manufacturing sector growth dropped by 0.1 percentage point to 7.9 per cent. The report attributed the drop to power rationing.

 Another economist said the current government tight spending is not geared to address inflation problem rather to deal with budget deficit. “The government is trying to cope with budget deficit and not address inflation issues,” the economist said.

He faulted the Bank of Tanzania measures to tame structural related inflation using monetary measures, saying, “Let’s address the high inflation rate looking at the real side of the economy not only a merely one side—monetary.
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