Food and household energy supply 86 per cent of the price rise, while the franc barely moved, so the rate-setters hold the wrong lever.

By Kanisa Magazine · August 2022

Annual inflation in the DRC reached 10.01 per cent on the Banque Centrale du Congo’s index in the week to 26 August, almost double the 5.38 per cent of late December. In Kinshasa the weekly price index rose in every one of August’s four weeks, to 169.11 from 167.63, and the BCC’s own method annualises that pace to 12.2 per cent for the full year.

The headline is the smaller part of the story. Look beneath it and the pressure sits in two places: what households eat and what it costs to move and cook it. The franc, which gained and lost almost nothing against the dollar in August, is not the culprit.

Two baskets carry the whole rise

Food and household energy account for 86 per cent of Kinshasa’s inflation.

The BCC digest of 29 August breaks the index into twelve groups and shows each group’s share of the rise. Food and non-alcoholic drinks supply 58.44 per cent of the total. Housing, water, gas, electricity and other fuels supply 27.41 per cent. Miscellaneous goods and services add 8.50 per cent and transport 3.42 per cent. Clothing, communications, education, hotels and leisure together contribute less than 2 per cent.

For an economy whose households spend most of their budgets on food and cooking fuel, that is what an inflation rate should look like. The index mostly measures what the poor pay.

The cassava line

Staples moved faster than anything else in the basket.

The sharpest moves were in cheap starches. The sub-index for potatoes, cassava, other tubers and bananas rose from 234.6 in the first week of August to 244.9 in the fourth, a gain of 4.4 per cent in three weeks, including 1.8 per cent in the final week alone. Vegetables rose 1.4 per cent over the month and meat 1.0 per cent. Bread and cereals, by contrast, rose just 0.2 per cent, and rents did not move.

The pattern matches what market traders in Kinshasa were already saying in the spring. Radio Okapi reported on 30 March that dried cassava had gone from 70,000 to 120,000 francs a bag and a 25-litre drum of palm oil from 45,000 to 52,000, with sellers blaming taxes and the state’s failure to regulate merchants. Those are the traders’ own explanations, not a measured cause, but the August index shows that the staples they described had not settled.

Fuel is the second lever

Pump prices follow a 5 per cent rule, and the rule keeps firing.

Fuel and its derivatives run through the other half of the index. Electricity, gas and other fuels rose 1.4 per cent in the four weeks, personal vehicle use 2.2 per cent and transport as a whole 1.8 per cent. The ministry of the economy has explained that pump prices are reset when international price, exchange rate or volume moves beyond a 5 per cent tolerance. In January it said the import benchmark was already 60 per cent above August 2020 for petrol.

The IMF’s staff report for the second review adds the budget side. It records an average 6.5 per cent fuel-price increase in April 2022, a further CDF 150 increase and the end of the fuel subsidy for foreign airlines from 30 May, and says non-fuel, non-food inflation stays low partly because subsidies hold fuel prices down. The fund revised its end-2022 inflation forecast to 11 per cent. With the BCC’s index at 10.01 per cent in August, that forecast looks achievable only if the autumn is calmer than the summer.

The policy rate is looking the wrong way

Congolese franc interest rates cannot cool a price rise that comes from supply.

The BCC’s policy rate has been 7.5 per cent since January. Against 10.01 per cent inflation, that is a real rate of minus 2.51 per cent, and it was positive at 3.12 points last December. Raising the rate would tighten franc credit, but credit is a small part of a dollarised economy, and none of the August movers, cassava, vegetables, gas or fuel, responds quickly to the price of francs.

For a firm, the lesson is to index what it can and stock what it must. Retailers and food processors can write supply contracts against the BCC’s weekly food sub-index instead of the headline. Transport operators should budget for fuel in steps of 5 per cent, because that is how it will arrive. Employers deciding on pay rounds need to know that food and energy are about 86 per cent of the rise, and that staff earning less than the average price level feel it most.