Tanzania: BoT raises alarm over inflation target

THE Bank of Tanzania (BoT) has warned that it may fail to attain the inflation target of 5 per cent, following the re-emergence of inflationary pressures fuelled by unreliable electricity and high food costs.

BoT said in June's Monetary Policy Statement (MPS) released recently that average annual inflation declined to 6.3 per cent during the first ten months of 2010/11, from 11.1 per cent recorded in the corresponding period in the preceding year.

Nevertheless, BoT said in the report that the re-emergence of inflationary pressures from the recent increase in domestic food prices and global oil prices poses a challenge to the attainment of the inflation target.

The inflationary pressures were exacerbated by an increase in electricity tariffs by 18 per cent starting January, as well as an increase in prices of locally produced food following poor short rains in the second quarter of 2010/11.

In line with these developments, inflation rose continuously, reaching 8.6 and 9.7 per cents at the end of April and May consecutively, while statisticians extend worries that the rate will cross to double digit.

When presenting the April’s inflation figure, National Bureau of Statistics (NBS) Director of Population Census and Social Statistics, Mr Ephraim Kwesigabo, said there are still worries despite the low rate.

In particular, the central bank said that annual inflation eased from 7.2 per cent in June 2010 to 4.2 per cent last October. However, beginning November 2010 inflation went up mainly due to increase in global oil prices.

The problem lies on the annual inflation rate of the food and non-alcoholic beverages group (combining food consumed at home and in restaurants), which was on an upward trend since last November, reaching 9.7 per cent this April from 6.0 per cent.

Likewise, the annual non-food inflation rate maintained an upward trend since November 2010 picking up to 7.8 per cent in April 2011, from 4.9 per cent.

On the other hand, the annual inflation rate excluding food and energy—a proxy for core inflation—took a much slower upward trend reaching 5.7 per cent in April from 3.7 per cent in November 2010, signifying the pass through effect, particularly from high oil prices.