Bountiful harvest lowers inflation rate in Tanzania

By Deodatus Balile in Dar es Salaam

September 13, 2012

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Tanzania produced its best harvest in three years from April to June this year, bringing down the country's inflation rate nearly 2%, the Bank of Tanzania said in its latest report.

  • Merchants sell fish and food in the Nguruka district of Kigoma. Albina Ngando, one of the merchants, says the money she makes now goes further due to lower inflation. [Deodatus Balile/Sabahi]

    Merchants sell fish and food in the Nguruka district of Kigoma. Albina Ngando, one of the merchants, says the money she makes now goes further due to lower inflation. [Deodatus Balile/Sabahi]

According to the report, Tanzania's inflation rate dropped to 15.7% in July compared to 17.4% in June.

The Bank of Tanzania (BoT) Monthly Economic Review Report and the Consumer Price Index from the National Bureau of Statistics, both published in August, attribute the decrease in the inflation rate to the good harvest and lower prices for utilities in the month of June.

"The change was driven by a decrease in prices of items such as food, housing, water, electricity, gas and other fuel," the BoT report said.

Honest Ngowi, economics lecturer at Mzumbe University, told Sabahi that the harvest helped push down food prices, the most important variable in calculating inflation.

Despite the improvement, Ngowi said more needs to be done for Tanzania to achieve its target inflation rate of 5%. "Therefore, 15% -- which is 10% higher than the national policy -- is unacceptable," he said. "We should find a way of bringing it down more quickly."

The target rate for the Southern African Development Community (SADC), of which Tanzania is a member, is set even lower at 3%, which poses an even greater challenge for the country, he said.

According to the SADC, for Tanzania to quickly close the gap, it has to make a substantial investment in factories that process local agricultural products, which will add value and command higher prices in the international market.

Currently Tanzania imports more than it exports. Since international trade is conducted in US dollars, the imbalance increases demand for foreign currency, resulting in higher inflation rates. Selling more goods abroad at higher prices will enable Tanzania to earn more foreign currency, which will help mitigate the import-export gap, Ngowi said.

Ngowi said high inflation is an obstacle for developing countries, but if they contain it to single digits, their economies can grow quickly.

Government role in inflation rate

Nonetheless, economists say the government must be careful and apply correct policies to decrease inflation.

Last year, inflation increased to 19% after the government removed currency from circulation as a measure intended to counter inflation, said Mnaku Mbani, a journalist for the Business Times.

"Last year, BoT tried the option of taking money away from circulation, believing it was monetary pressure [that caused high inflation], but it did not work," Mbani told Sabahi. "They thought maybe banks had loaned too much to the private sector, but it failed to bring down inflation."

Inflation remained high because an incorrect economic policy was applied and agricultural investments were not made, he said.

Mbani said the drought that impacted the region last year caused shortages of food, which accounts for 47% of consumer activity in the country and is thus a major contributing factor to the persistent high inflation rate.

To decrease the inflation rate, the government should give subsidies to farmers to help them increase production, he said. Additional investments are also needed to develop secondary industries so that agricultural by-products can be produced domestically.

Albina Ngando, 46, a merchant in the Nguruka district of Kigoma, said she is happy prices have dropped since January. "Life has become a little bit easier compared to last year," she told Sabahi.

Ngando said even though fewer customers are buying her fish, the little money she earns is more valuable. "Last year, if you changed a 10,000-shilling note it just vanished in thin air, but not now," she said. "At least if you have 10,000 shillings, you are OK."

Hassan Salim Hassan, 51, a teacher who resides in the Temeke district in Dar es Salaam, supported Ngando's position, saying life this year is somewhat easier than last year. "The prices for maize flour and rice have not [increased] this year," he said. "If we continue this way, life will be good."

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