Zambia Inflation Hits Three-Year High Amid Drought, Kwacha Weakness

BREAKING NEWSNovember 29, 2024 at 10:29 AM UTC

TLDR

Zambia’s annual inflation rate spikes to 16.5% due to severe drought and weaker kwacha currency.
Kwacha experiences a 3.5% decline against the US dollar, impacting electricity and food prices.
Central bank raises key interest rate to 14% in response to inflation surge amid ongoing economic challenges.

Zambia’s annual inflation rate rose to 16.5% in November, up from 15.7% in October, reaching its highest level in three years. The increase is driven by the country’s worst drought in over a century and a weakening kwacha, which have pushed up electricity and food prices, according to Acting Statistician-General Sheila Mudenda.

The kwacha has fallen 3.5% against the dollar this quarter, as Zambia relies heavily on costly food and electricity imports to address shortages caused by the drought. With hydropower accounting for 85% of the nation’s electricity, reduced water supplies have significantly impacted energy production. In response, electricity tariffs for high-demand users rose by 115% from November 1 to fund imports.

To address inflation, the central bank raised its key interest rate to 14% this month, the highest in seven years. Governor Denny Kalyalya indicated readiness to take further action if inflation remains above the 6%-8% target band.

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Key Takeaways

Zambia’s inflation surge underscores its vulnerability to climate-driven energy disruptions and currency fluctuations. While the central bank’s rate hikes aim to stabilize inflation and the kwacha, long-term solutions may require diversifying energy sources and improving food supply resilience to mitigate future shocks.

Zambia

Inflation

Interest Rate

Kwacha

Currency Devaluation

Economy

Central Bank