Biz/ed - Copper Tour - Mufulira [ Biz/ed Virtual Developing Country ]

Mufulira

Inflation in Zambia

One of the burdens affecting the population of Zambia is that of inflation. Inflation is where there is a general and persistent increase in the level of prices usually measured by the consumer price index. However, as a single inflation rate is an average it is perhaps misleading to consider one single inflation rate affecting all Zambian equally. Inflation rates differ between metropolitan and non-metropolitan areas and between low and high-income people living in metropolitan areas.

Inflation is higher in cities and also is higher for those people on low incomes than those on high incomes. The impact of government policies such as a reduction in price controls and the removal of subsidies on maize production and cut backs in public spending have a greater impact on the poor urban dwellers. For those people living in absolute poverty the effect of increasing prices can be catastrophic. An increase in the price of maize and other staple crops will mean people having to go without. This will inevitably mean malnutrition and starvation. In the longer term poorer diets will further lower the productivity of an already impoverished workforce.

If you consider the Inflation figures for the period between 1986 and 1998 the rate of inflation has always been in excess of 20% and sometimes over 100%. This is a good example of galloping inflation.

Let's consider the level of inflation from 1990-1997:

1990	1991	1992	1993	1994	1995	1996	1997
107.02	93.21	169.05	188.05	53.61	34.20	46.27	24.81

The first thing that many of you will notice is that the overall inflation rate is considerably higher than current inflation rates of MDCs where inflation is often creeping at rates of less that 2% per annum.

Comparative inflation data

Although the inflation rate has shown a decrease during the decade of the 1990s the rate of inflation is still high and in an economic climate of increasing unemployment and falling incomes the ever-increasing price level pushes many into deeper and deeper poverty.

There is considerable debate about the causes of inflation.

Shortages of maize and agricultural goods during and following droughts put upward pressure on prices. However, ironically it is often the policies of the government, following the structural adjustment strategies of the IMF and the other multilateral donor organisations that aim to reduce inflation and to stimulate the supply side of the economy, that worsen the problems of poverty. Removing price controls on maize in an attempt to stimulate the agricultural sector raises the price of maize, which is an integral part of many people's diet. Removing subsidies on fertilisers raises the costs of production on farmers causing them to push their prices up.

The devaluation of the kwacha also meant that the price of imports into Zambia became more expensive and again pushed up prices.

The IMF place much of the responsibility for the inflation with the government through their expansionary financial policies that occurred because of excessive government spending such as that keeping inefficient parastatals afloat. Budget deficits have been financed through borrowing and this it is argued leads to demand pull inflationary pressures. Reduced copper revenues have increased the need for government to borrow to finance their spending.

The IMF have explained the recent reduction in 1996 in the inflation rate through a tightening of fiscal policy through reductions in government spending and increased revenues from vehicle registration fees, collection of tax arrears and privatisation revenue.

However, getting the balance between macroeconomic stabilisation and poverty reduction is not easy. Some would argue that they conflict.

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