How subsidies help keep inflation rate at single digit

INFLATION rate in Tanzania is projected to remain at single digit in the first quarter of this year despite the ongoing war between Russia and Ukraine coupled with the negative aftermath of Covid-19 pandemic, which have resulted into economic woes across the globe.

The Director General of National Bureau of Statistics (NBS), Dr Albina Chuwa, attributed the sustainability of inflation rate to interventions by the government through subsidising prices of fuel and fertilisers to boost local production.

Speaking during a one-day seminar for journalists in Dar es Salaam yesterday, the government’s chief statistician projected further that the cost of food items and soft drinks is expected to decrease from 9.7 per cent, which was recorded in December, last year, to 8.4 per cent by March, year.

Dr Chuwa explained that 132 food items and soft drinks out of 383 products are used to compute the Consumer Price Index (CPI) to determine inflation rate each month.

According to Dr Chuwa, food items and soft drinks alone constitute 28.2 per cent while weighing CPI while non-food items such as energy and water accounts for 15.1 per cent.

Tanzania registered an inflation rate of 4.9 per cent in November, which later slightly decreased to 4.8 per cent in December, last year, while the average annual inflation rate for 2022 stood at 4.3 per cent, she explained.

“While computing CPI we abide by international standards set by the IMF (International Monetary Fund). This enables us to compare our situation with other countries in the region and beyond,” she explained.

Dr Chuwa commented further that the intervention by the government in sensitive sectors of the economy has enabled prices of goods and services to remain stable compared to other countries.

“The provision of subsidies has enabled the country to stabilize prices of goods and services, otherwise we would have been subjected to cost-push inflation which is caused by increased production and transportation costs,” she observed.

NBS’s Acting Director of Population Census and Social Statistics, Ms Ruth Minja, pointed out that single-digit inflation is among catalysts for economic growth.

“Single-digit inflation tends to attract investors in an economy due to sustainability of prices in the market,” she explained.

At the same occasion, the Bank of Tanzania (BoT)’s Director of Economic Research and Policy, Dr Suleiman Missango, said stable inflation rate is among factors that propelled Tanzania to be classified as a lower middle-income economy by the World Bank.

Dr Missango, however, expressed concerns that the ongoing conflict between Russia and Ukraine in addition to sanctions imposed on the former have led to supply disruptions and hence leading to increased prices of commodities.

“It should be noted that the two countries are among major suppliers of commodities such as fuel, gas, wheat, fertilisers and edible, the war has disrupted supply chain at the time when demand for such goods is high,” he stated.

The economist further noted that high inflation rates experienced in other parts of the globe have forced many central banks in the world to increase costs of borrowing.

“Among other negative impacts, high inflation rate reduces purchasing power and slows down economic growth,” he said.

Dr Missango was nevertheless content that Tanzania has managed to sail through the economic hardships unlike other countries in the world.

“For instance, it was predicted that because of the war the inflation rate would have been 5.4 per cent but through measures undertaken by the government the rate was at 4.8 per cent in December, last year,” he explained.

Dr Missango also expressed concerns that due to an increase in import bill, foreign reserves declined to 5.2 US billion dollars in December 2022 compared to 6.4 US billion dollars which was recorded in December 2021.

The amount which was recorded in December, last year, is enough to cover for 4.7 months of imports down from 6.6 months which was recorded during the same period in 2021.

“Despite the impact, foreign reserves remained adequate, above Tanzania and EAC (East African Community) benchmarks,” he explained.

The economist further revealed that provisional figures collected by the central bank have shown that high prices of imports increased import bills, leading to widening of the current account deficit.

“Current account deficit more than doubled to 5.3 US billion dollars in 2022 as increase in imports more than offset that of exports. The deficit is expected to narrow as prices in the world market decline,” he noted.

Dr Missango expressed optimism that the decline in current account is moderately lower compared to other countries in sub-Saharan Africa.

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