Posted on December, 5, 2018 at 11:19 am
THE average inflation of East African Community (EAC) has eased considerably in third quarter, thanks to low food prices in Tanzania and Burundi.
The bloc inflation dropped to historical low of 2.0 per cent in quarter three compared to 7.2 per cent of similar quarter last year, according to Bank of Tanzania’s Quarterly Economic Bulletin (QEB) for three months ending September.
“The decrease in inflation in Tanzania and Burundi was on account of decline in prices of food items,” the QEB report that released yesterday showed.
The report indicated further that while Burundi and Tanzania eased due to low food prices, Kenya inflation went up due to an increase in prices of food items and transport costs.
However, “All EAC partner states attained convergence criteria level of inflation rates of not more than 8.0 per cent,” Tanzania central bank said in the report.
On the other hand, on quarter-to-quarter basis the region inflation on average dropped by one percentage point to 2.0 per cent in three months to September against 2.1 per cent in quarter ending June.
“With exception of Kenya and Uganda, all other EAC member states recorded declines in inflation compared to the quarter to June,” QEB report showed.
The EAC inflation was on a declining path since quarter one of this year when dropped to 2.9 per cent from 6.3 per cent of three months to last December.
Burundi was the only country in EAC for the consecutive two quarters to register deflation—a negative inflation—of 1.0 per cent in Q2 and 2.9 per cent in Q3.
Deflation occurs when the inflation rate falls below 0% (a negative inflation rate). Inflation reduces the value of currency over time, but deflation increases it. This allows one to buy more goods and services than before with the same amount of currency.
Economists generally believe that deflation is a problem in a modern economy because it increases the real value of debt, especially when it’s unexpected. Deflation may also aggravate recessions and lead to a deflationary spiral.
Rwanda also recorded a low inflation since the beginning of quarter one this year of 1.0 per cent and increased slightly to 2.0 per cent in quarter two and three followed by Tanzania whose inflation dropped from 4.0 per cent in Q1 to 3.3 per cent at Q3.
Uganda the third with low inflation of 3.5 per cent in Q3 though up from 2.4 per cent in Q1 and 1.9 per cent in Q2.
Kenya was the only member state in EAC with high inflation rate of 4.2 per cent in Q3, 4.0 per cent in Q2 and 4.5 per cent in Q1.
Low inflation is among key convergences toward the region establishment of a common currency.
The protocol for the establishment of the East African Monetary Union (EAMU) was signed in November 2013 by the EAC member states, setting up a roadmap for a Monetary Union within 10 years, implying that a single currency regime should be up and running by the year 2024.
EAC member country therefore has six years to implement a single currency regime and three years to comply with key macro-economic convergence criteria on inflation, fiscal deficits, forex reserves and public debt.
Source: Daily News