Absa’s inflation outlook for East Africa

As economic events unfold across the African continent, the focus has shifted to East Africa, where inflation rates are on the rise. Ridle Markus, the Africa Strategist at Absa Corporate & Investment Banking, sheds light on the factors driving inflation in countries like Kenya and Uganda. In a recent interview with CNBC Africa, Markus discussed the key issues affecting inflation in the region, including food and transport costs. In Kenya, headline inflation has reached 6.3 percent, largely due to higher food prices. Similarly, Uganda's inflation rate has risen to 2 percent, driven by a combination of transport and food costs. One of the common themes across East Africa is the increase in transport costs, which has been a major contributor to rising inflation. Markus points out that food costs have also played a significant role in driving up inflation rates. While Uganda has experienced food deflation in the past, recent trends indicate a reversal in this pattern. Markus attributes part of the inflationary pressure to the recovery in demand post-pandemic, as economies begin to bounce back. The disparity in food inflation between Uganda and Kenya highlights the diverse drivers of inflation within the region. Despite their geographical proximity, these countries exhibit distinct economic trends influenced by local factors such as weather patterns and supply chain disruptions. Markus emphasizes the impact of supply chain dynamics on inflation, noting that the same factors affecting one country may not be present in another. Looking ahead, Markus paints a cautious outlook for East Africa, particularly in light of the recent surge in oil prices. With oil prices surpassing $75 per barrel and the global economy showing signs of recovery, inflationary pressures are expected to mount. The resurgence of COVID-19 cases in the region poses additional challenges, as supply chain disruptions could hamper economic recovery efforts. In conclusion, Markus warns that inflation is likely to continue trending upwards in most East African markets, posing a dilemma for monetary policymakers. The need to strike a balance between supporting growth and containing inflation remains a key challenge. As countries grapple with the dual impact of rising food and oil prices, navigating the economic landscape will require a delicate balancing act.