Rwanda’s annual inflation surges to 7.5% in March
Rwanda’s consumer prices continued to rise in the past months, driving up year-on-year inflation rate to 7.5 per cent in March from 5.8 per cent in February 2022. Prices of foodstuffs, the main driver of inflation, increased by 10.2 per cent. Straton Habyalimana, Lead Consultant at Straton’s Advisory Services spoke to CNBC Africa for more.
Mon, 25 Apr 2022 10:16:32 GMT
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AI Generated Summary
- Rwanda's inflation rate rose to 7.5% in March from 5.8% in February 2022, primarily fueled by a 10.2% increase in food prices.
- Global trade and supply chain disruptions, compounded by the Russia-Ukraine conflict and lingering effects of the COVID-19 pandemic, are driving the inflation surge.
- The Central Bank faces limitations in controlling imported inflation, with a substantial 12% spike in imports compared to a more modest 6.1% rise in local goods.
Rwanda's consumer prices have continued to surge in recent months, propelling the year-on-year inflation rate to 7.5% in March from 5.8% in February 2022. Straton Habyalimana, Lead Consultant at Straton's Advisory Services, shed light on the factors driving this inflation spike in an interview with CNBC Africa's Julius Wiesemongo. The primary culprit behind the inflation surge has been the significant increase in food prices, soaring by a staggering 10.2%. Habyalimana highlighted that the Central Bank had foreseen a potential rise in the Consumer Price Index (CPI) throughout the year, with expectations hovering around 8%, making the current 7.5% figure not entirely unexpected. He predicted that this upward trend is likely to persist in the coming months, primarily due to global trade and supply chain disruptions, exacerbated by the ongoing effects of the COVID-19 pandemic and the Russia-Ukraine conflict. The conflict between Russia and Ukraine has impacted various sectors, particularly driving up production costs due to disruptions in the supply of crucial commodities like gas and fuel. This has caused a domino effect, pushing the prices of essential goods higher. Habyalimana pointed out that certain sectors in Rwanda are feeling the impact more intensely than others. The report highlighted that hotels and restaurants, along with the energy sector, have been the most severely affected, with price rises of nearly 15% and 14.7%, respectively. Other sectors such as housing and utilities, including water and electricity, have seen an increase of 8.1%, while transport recorded a more moderate uptick of around 3.8%. Despite the Central Bank's target of maintaining inflation between 2% and 8%, with the normal benchmark around 5%, the current inflation numbers pose a significant challenge. Habyalimana emphasized that the issue lies in the fact that a substantial portion of the inflation is imported, with imports registering a steep 12% surge compared to a more modest 6.1% increase in local goods. This leaves the Central Bank with limited control over external factors such as global disruptions and political tensions, like those between Ukraine and Russia. While local monetary policy can help mitigate domestic inflationary pressures, external influences remain a significant concern. The Central Bank's primary strategies revolve around ensuring that domestic prices do not escalate to accommodate global price hikes, guaranteeing the availability of essential commodities in the market, securing adequate reserves for imports, and adjusting the key repurchase rate if necessary. Looking ahead, Habyalimana anticipated that the current rising trend in inflation is likely to persist over the next three to six months. While the pace of increase may vary slightly, with potential fluctuations of 2-4%, the overarching trajectory is expected to remain upward due to ongoing global uncertainties. Factors such as the prolonged Russia-Ukraine conflict and supply disruptions stemming from events like the recent lockdowns in major Chinese production cities are expected to keep inflationary pressures elevated. When discussing the possible response from the Central Bank amidst these economic challenges, Habyalimana suggested that the institution would continue monitoring the situation closely to prevent further currency depreciation. Measures such as adjusting the reference interest rate might be considered to curb rising prices, although he acknowledged that this might not be a panacea, especially when facing multifaceted global economic challenges. With uncertainties looming on the global economic horizon, including the IMF and World Bank downgrading global growth forecasts and supply disruptions due to geopolitical tensions, Rwanda's Central Bank faces a delicate balancing act to navigate these turbulent waters effectively.