The gap between this year’s average and its December level is a bill households pay in 2021 even if nothing rises.

By Kanisa Magazine · December 2020

The Banque Centrale du Congo’s national retail price index ended its December 2020 reading 20.5 per cent above a year earlier. Averaged across the whole year, prices were only 13.8 per cent higher than in 2019. The first number describes where households stand at the end of the year and the second describes what they paid on average.

Divide one by the other and the result is the unfinished business of 2020: about 5.9 per cent of inflation that is already in the price level and will show up in the 2021 average even if every price stops rising on 1 January. That inherited slice is the real consumer-price signal of the month.

How the carry-over works

Prices climbed through the middle of the year, so the year-end level sits far above the average.

Take the BCC’s figures as given. The 2020 average-annual rate is 13.8 per cent and the end-period rate is 20.5 per cent. If the December price level stayed frozen through 2021, the 2021 average would sit 5.9 per cent above the 2020 average, since 1.205 divided by 1.138 is 1.059. In November the same two figures were 20.3 and 13.2, which gave 6.3 per cent. The inheritance shrank a little because the weekly pace was small.

The national index rose 0.142 per cent in the latest week, to 125.164, with December 2018 as 100. At that speed prices would compound to about 7.7 per cent over a year, less than half of the 2020 outcome. The year-end bulge is the product of a spring and summer in which the franc lost 15 per cent against the dollar and importers repriced stock.

What households actually buy

Food accounted for two-thirds of the latest week’s price rise.

The BCC’s contribution chart for the week to 24 December attributes 65.04 per cent of the price rise to food and non-alcoholic drinks, up from 45.47 per cent in its 20 November chart. Clothing contributed 10.84 per cent, health 5.87, transport 4.80 and housing, water and energy 2.34. Education contributed nothing in the week.

The shift matters because food is where Congolese households have the least room to economise. Kinshasa’s own index rose 0.164 per cent in the week, faster than the nation, and the capital held 9,910 of the 12,987 Covid-19 cases counted by early December. Year-end demand for staples, together with the second wave of Covid-19 that Dr Jean-Jacques Muyembe warned on 30 November would test Christmas gatherings, tends to concentrate price pressure in the market stall.

The rate that rewards waiting

The central bank’s own real rate is positive on one measure and negative on the other.

The policy rate has been 18.5 per cent since August. Against the INS annual inflation figure of 15.48 per cent that the BCC uses, the real policy rate is plus 3.02 points. Against the BCC’s own index at 20.456 per cent it is minus 2 points. The INS figure has drifted down from 15.70 per cent in late September, while the BCC index has crept up from 20.3 per cent in the November digest, so the two series are diverging at the end of the year.

For savers and for firms holding francs, the question is which thermometer the central bank trusts. Its published tables use the lower one, which supports keeping the rate where it is, and the bill yield cut from 18 to 13.5 per cent in the same month hints at a bank that thinks inflation is falling.

What to put in the 2021 plan

Budget for six per cent before new shocks, and index to the BCC series.

The practical consequence is a floor under 2021 costs. A retailer, a restaurant group or a manufacturer using francs for payroll and suppliers should plan on at least 5.9 per cent of cost inflation in the 2021 average, whatever the weekly figure does. Wage rounds that begin from 15.5 per cent will look generous against the INS series and ungenerous against the BCC’s.

A reasonable approach is to set 2021 pricing on the higher figure, review each quarter against the weekly pace, and keep franc contracts short. If the weekly rate stays under 0.15 per cent through the first quarter, the carry-over will be the whole of the first-half problem, and the second half can be planned on single digits. Watch the food share of the weekly contributions: when it drops below half, the household squeeze is easing.