A stable franc has cut price momentum to 0.15 per cent a week, but households still carry the summer’s increases.

By Kanisa Magazine · November 2020

Prices in the Democratic Republic of the Congo rose 0.150 per cent in the week from 16 to 22 November 2020 on the Banque Centrale du Congo’s national retail index, which stood at 124.226 with December 2018 as 100. If that pace held for a year it would compound to about 8 per cent. The index has actually risen 19.6 per cent since the end of 2019, a pace of roughly 0.38 per cent a week.

So the economy is in the odd position of having slowing inflation and a high inflation rate at the same time. Two different annual figures are in circulation, and which one a business uses changes its pricing, its wage review and its reading of the central bank.

Two thermometers

The same week yields 15.5 per cent from one series and 20.3 from the other.

The BCC’s money-market tables use annual inflation of 15.53 per cent, a figure the digest’s footnote says comes from the national statistics institute, the INS, which replaced the BCC’s own annual rate in 2013. The BCC’s national index table, built on its weekly price collection, shows the annual rate at 20.300 per cent and the cumulative rise since December at 19.554 per cent. The summary table of the digest puts the 2020 end-period figure at 20.3 per cent, up from 3.9 per cent in 2019.

The gap is not an error. The two series have different baskets, weights and coverage, and the BCC index is tuned to a faster weekly collection. What matters for a firm is that the central bank deflates its policy rate with the lower figure, so the real policy rate it publishes, plus 2.97 points, would be nearer minus 1.8 points on the BCC index.

What the basket is made of

Nearly half of the week’s price pressure is food.

The BCC’s contribution chart attributes 45.47 per cent of the week’s price rise to food and non-alcoholic drinks. Clothing accounts for 10.59 per cent, health for 9.59, transport for 8.73, housing, water and energy for 8.71 and restaurants and hotels for 6.42. Education adds 2.85.

That structure explains why the summer hit households so hard. On 21 July, when the parallel dollar rate crossed CDF 2,000 on Kinshasa’s street markets, a sack of maize meal moved from CDF 38,000 to 40,000, a sack of rice from CDF 36,500 to 38,000 and a 5-kilogram bag of sugar from CDF 11,500 to 12,500. Wheat flour was selling at CDF 60,000 a sack. Those are staples with a large import or dollar-linked component, so they reprice quickly when the franc moves.

Why the pace has eased

The exchange-rate anchor works on weekly prices before it works on annual ones.

The franc has held near CDF 1,965 since late July. Importers who reprice stock at the rate on delivery day have had nothing to pass through since August. The 2021 budget draft of CDF 14,247.5 billion, about US$6.8 billion, was set in agreement with the IMF’s call for realism, which reduces the risk of money-financed spending later.

But annual rates look backwards. A year-on-year figure of 20.3 per cent will stay elevated until the summer increases fall out of the comparison base, which on this arithmetic means mid-2021. Kinshasa’s own index rose 0.165 per cent in the week, a little faster than the national average. Restaurants and drink outlets, at 0.488 per cent in the week, were the quickest-moving category in the Kinshasa table.

What to do with two numbers

Index wages to the lower figure and budget costs to the higher one.

For a human resources director, the argument for using the INS rate of 15.5 per cent in wage talks is that it is the officially cited measure and the one the BCC uses itself. For a purchasing director, the argument for planning on the BCC’s 20.3 per cent is that its weekly collection tracks the shelf prices a business actually meets.

The sensible practice is to use the lower figure as the public benchmark and the higher one as a stress case, and to watch the weekly rate rather than the annual one. If it holds below 0.2 per cent through December, 2021 budgets can assume single-digit price growth in the second half. If it climbs back above 0.3 per cent, the franc’s pause is ending and contracts should carry exchange-rate review clauses.