Zambia annual inflation up to 16.8% in February

In a recent development, the Bank of Zambia's Monetary Policy Committee decided to increase the policy rate by 50 basis points to 14.5 per cent in a bid to guide inflation back within the 6-8 per cent target band amid mounting economic pressures. This move comes as Zambia grapples with significant challenges that have impacted the country's economic landscape. CNBC Africa sat down with Musenge Komeki, Head of Sales for the Global Markets Division at Stanbic Bank Zambia, to delve into the primary factors contributing to Zambia's soaring inflation rate, which reached 16.8 per cent in February 2025. According to Komeki, the country has been heavily affected by a severe drought, leading to a 115 per cent increase in electricity costs to accommodate imports. This spike in electricity prices has cascaded through the economy, resulting in heightened food inflation and increased grain prices as Zambia struggles to recover from the drought's aftermath. The inflationary pressures stemming from these factors have posed a significant challenge for the country. The recent 50 basis points increase in the policy rate by the Bank of Zambia aims to curtail inflation and steer it back toward the desired band of 6 to 8 per cent. However, Komeki foresees challenges in achieving this target in the near term, as current projections suggest a peak inflation rate of 14.2 per cent by May with a gradual decline expected thereafter. Factors such as global commodity price fluctuations and regional economic conditions play a pivotal role in Zambia's inflation outlook and investment climate. Komeki highlighted the impact of imports on inflation, emphasizing that the country's economy heavily relies on importing goods, particularly from South Africa. The depreciation of the local currency, the kwacha, against major currencies has further exacerbated inflationary pressures by directly impacting prices of imported commodities. Despite these challenges, Zambia's Purchasing Managers' Index (PMI) has shown improvement to 50.8, signaling a resurgence in growth. Komeki attributes this recovery to the resilience and adaptability of businesses in the face of challenges such as energy supply constraints and inflation. Corporations have implemented measures like alternative energy sources to mitigate the impact of power shortages, leading to improved operational efficiency. However, Zambia's response to the suspension of US aid funding poses a significant hurdle in sustaining economic growth. The withdrawal of approximately $600 million in aid, with a substantial portion allocated to HIV-related programs, has disrupted essential health, agriculture, and education initiatives. Komeki expressed concerns about the short-term impact of this aid suspension on vital programs in Zambia. To mitigate these challenges, he stressed the importance of self-reliance and self-funding to reduce dependence on external aid. The government's call for self-reliance amidst aid suspension highlights the need for Zambia to prioritize sustainable economic growth strategies and budget adjustments to navigate the current economic turmoil. The road ahead for Zambia presents a complex economic landscape, with inflationary pressures, energy supply constraints, and aid suspension posing challenges to the country's growth trajectory. As Zambia navigates these obstacles, fostering self-reliance and strategic financial planning will be crucial in charting a sustainable economic path forward.