Zambia experiences first slowdown in inflation since June 2023

Zambia recently experienced a slowdown in inflation for the first time since June 2023, sparking discussions about the future trajectory of price pressures in the economy. The moderation in inflation in March was primarily driven by a significant drop in food inflation, which decreased from 20% to 18.9%. This decline was attributed to a better harvest year compared to the previous year, which was marred by droughts that led to price increases. While food inflation is expected to continue to taper off, non-food inflation remains a concern due to kwacha weakness. Despite the challenges posed by cost-push inflation, it is anticipated that inflation in Zambia is likely to peak soon. The Central Bank had projected a year-end inflation rate of 14.6%, with expectations of a gradual decline starting as early as July. However, uncertainties remain due to global economic dynamics and the impact of factors such as kwacha depreciation on import costs, which could lead to higher non-food inflation rates. The key policy rate currently stands at 14.5%, with expectations that any future adjustments will be contingent on the inflation trend. The recent 25% tariff on copper announced by Donald Trump has generated mixed reactions in Zambia, a major copper producer. While the tariff may increase export revenue potential, it could also affect mining activities and have broader economic implications. Nonetheless, the demand for copper is expected to remain strong, driven by global trends towards electric vehicles and energy-efficient technologies. In terms of investments, the Chinese government's $1.4 billion investment in the Tanzania-Zambia railway project signals confidence in the region's infrastructure and potential for economic growth. This investment, along with other ongoing projects, reflects a long-term view on the importance of copper in the global economy. Looking ahead, the outlook for the Zambian kwacha remains uncertain, with factors such as the Trump tariffs, supply of dollars in the market, debt obligations, and aid freezes contributing to potential currency volatility. While resistance to the 30 Kwacha to the dollar level has been observed, sustained depreciation in the medium to long term is a possibility. As Zambia navigates through various economic challenges, maintaining stability and fostering growth will be key priorities for policymakers and market participants.