Inflation

The rate of consumer price inflation eased to 7.4% year on year in November, from 7.6% recorded in October. Lower inflation in the transport category of the consumer inflation basket was the primary driver of this moderation, with the annual rate declining to 15.3% in November from 17.1% in October. This was largely because of falling fuel prices in recent months, with annual inflation reaching 25.3% in November, compared with 30.1% in October. Core inflation, which excludes the volatile items in the consumer buying basket such as food and transport costs, remained steady at 5.0% year on year. Notwithstanding upside risk emanating from higher food prices and administered prices to the short-term inflation outlook, consumer price inflation is still expected to remain contained within the MPC inflation target over the medium term. Waning commodity prices coupled with a weak domestic economy, characterised by subdued consumer demand and muted wage growth, are expected to dampen inflation pressures in the months ahead.

Interest Rates

In November, at its sixth and final meeting of 2022, the MPC decided to increase the repo policy interest rate by 0.75% to 7.0%. This was the third consecutive meeting where the policy rate was increased by 0.75% and put the repo policy interest rate above its pre-Covid level of 6.5%. The split of the vote was less hawkish when compared to previous meetings, as three members opted for a rate increase of 0.75% while two members preferred a 0.5% increase. The MPC’s policy decision followed aggressive global interest rate hikes across major central banks. More notably, the Fed delivered its fourth straight policy rate increase of 0.75%, signalling another rate hike before year-end. The MPC assessed risks to inflation outlook to be on the upside as Russia’s war with Ukraine continued with adverse effects on global commodity prices. The decision essentially reiterated the MPC’S message from previous meetings that they will do whatever it takes to ensure that inflation expectations remain anchored, and that inflation retreats to within the target range within a reasonable time. The statement also went on further to note that guiding inflation back towards the mid-point of the target band can reduce the economic costs of high inflation and enable lower interest rates in the future.

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