NAIROBI, October 27 – A new report by the Standard Chartered Bank says inflation in sub-Saharan Africa is unlikely to dip to single digits in the next two years.
Titled “Examining Africa\’s vulnerability – Part I: A fiscal report card for African economies”, the study indicates that rising import prices are hitting the more politically mobilised, urbanised African population the hardest.
“Food dominates African consumption baskets, and consumer price index inflation has spiked,” it reads. “Despite the expected decline in commodity prices, we think it is unlikely that sub-Saharan Africa will see average inflation in the single digits either this year or next. Even the achievement of single-digit inflation in 2010 is looking somewhat doubtful.”
It cites the fact that many Sub-Saharan countries are only beginning to achieve macroeconomic stabilisation, which suggests that low, single-digit inflation may not be embedded in expectations. The second reason why inflation is likely to stay double-digit, the report adds, is the fiscal deterioration that has accompanied food price strength.
While it appreciates governments’ reaction to the food crisis, Standard Chartered Bank cautions against subsidies, saying that would help to kill off any potentially favourable supply response to higher food prices.
“The problem, in the context of African economies, is the generally weak tax base.”
The study further shows that although African financial markets are cushioned from the global crisis, sub-Saharan economies would be affected by weaker commodity receipts in resource-rich countries, potentially lower levels of official development assistance (ODA) in donor-dependent countries, and less easy financing from global investors.
“While more resilient to the global slowdown than other developing regions, Africa will still face its share of hurdles, with the more difficult external environment only highlighting home-grown vulnerabilities,” it concludes.
Read the full report in the ‘Market Analysis’ segment of features on this website.