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Wednesday, 16 July 2008

BOZ Quarterly Brief (Q2 2008)

The Bank of Zambia Quarterly Brief was out yesterday. You can assess both the presentation and report. The inflation outlook for the third quarter is as we expected:

During the third quarter of 2008, inflationary pressures may arise from the following factors:

  1. Increasing crude oil prices on the world market, which has resulted in an increase on domestic petroleum prices despite the reduction in tax;
  2. The removal of the Government subsidy on domestic fuel prices, which has resulted in higher prices. This will in turn translate into higher commodity prices due to increased transportation and production costs;
  3. The rise in water and sewerage rates effected in June 2008 which may have a negative impact on production costs; and
  4. The increase in Government expenditure arising from the 15% wage increase for civil servants back-dated to January 2008, which may increase liquidity if not managed effectively.

However, these pressures may be mitigated by pass-through effects of the appreciation in the exchange rate of the Kwacha against major foreign currencies on account of strong external sector performance. In addition, food inflation may ease as the crop marketing season activities increase.

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