(Bloomberg) -- Zambia’s annual inflation rate climbed in July to the highest level since December 2021, even as the southern African nation considers rules to curb increasing dollarization that’s making it harder to contain price pressures.
Consumer prices rose 15.4% from a year ago, compared with 15.2% in June, fanned by higher food prices, Statistician-General Goodson Sinyenga told reporters in Lusaka, the capital, on Thursday.
A harsh El Niño-induced drought has withered crops, stoking food prices and forcing Zambia to increase costly imports. Annual food inflation accelerated to 17.4% from 16.8% last month and non-food price growth decelerated to 12.6% versus 13% in June.
The main drivers behind the increase in food inflation were higher prices for bread and cereals, fish, vegetables and fruit, he said. The deceleration in non-food inflation was due to more subdued price pressure for big-ticket household items like refrigerators and washing machines, as well as pharmaceutical products and fuel.
Month-on-month inflation slowed to 1% in July from 1.3% in June.
Mounting price pressures may prompt the Bank of Zambia to raise interest rates for a seventh straight time when it releases its next policy decision on Aug. 14. Policymakers have hiked borrowing costs by 450 basis points since late 2022 to 13.5% as inflation drifted further away from their target band of 6% to 8%.
The central bank is consulting over plans to curb the use of foreign currency in domestic transactions, after the government last month announced draft regulations aimed at bolstering the local kwacha as the sole legal tender in Zambia.
In May the central bank flagged the elevated dollarization of deposits and loans with local lenders as being a key risk to financial stability. Local companies often borrow in dollars because those loans offer much lower rates than kwacha debt. Dollar savings help preserve wealth, after the local currency halved in value against the greenback over the past five years.
(Updates with more inflation data from fourth paragraph.)
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