The BCC’s weekly index shows three speeds of inflation and a policy rate still below zero in real terms.

By Kanisa Magazine · March 2023

Consumer prices in Congo rose 6.0 per cent in the first twelve weeks of 2023, and the Banque Centrale du Congo’s own projection of the year ahead is 28.8 per cent if that pace holds. The central bank’s monetary committee forecast inflation of about 9.7 per cent for the whole year when it met on 22 March, which means the first quarter has already used up most of the room it allowed.

The weekly price index in the BCC digest of 29 March is the sharpest instrument available. It measures a basket in eleven cities every week, and the spread between those cities is as informative as the national number.

Three speeds in one country

Kinshasa and Lubumbashi are running well above the national figure, and the gap is widening.

The national index stood at 154.447 (December 2018 = 100) in the week to 26 March, up 0.509 per cent on the week before. Year on year, that is 16.7 per cent. The cumulative rise since the end of December is 6.016 per cent, and the BCC’s annualised projection of that run is 28.8 per cent.

Kinshasa is faster. The capital’s weekly rise was 0.840 per cent, its cumulative gain for the year is 8.252 per cent, and prices are 21.5 per cent higher than a year earlier. Lubumbashi, the copper capital, shows 7.666 per cent since December and 23.5 per cent over twelve months. A trader quoting a single national figure to a supplier in either city understates what the supplier pays.

What is driving the basket

Staples and cassava lead; the food component is the one households cannot postpone.

In Kinshasa, the food and non-alcoholic drinks index went from 196.326 to 201.473 across four weeks, a rise of 2.6 per cent. Within it, the line for potatoes, cassava, other tubers and bananas jumped from 372.993 to 400.258, up 7.3 per cent in a month. Sugar rose 3.1 per cent, vegetables 3.7 per cent, and electricity, gas and other fuels rose 5.1 per cent.

FEWS NET’s March 2023 outlook noted below-average harvests in the northeast and centre-east of the country after low household participation in the agricultural season, and said conflict-affected provinces would remain in Crisis (IPC Phase 3). Those are the provinces that feed the capital’s cassava market, so conflict in the east shows up in a Kinshasa price index within weeks.

The policy rate and the rule it is meant to follow

The BCC’s own method says the policy rate should stay above inflation, and it has not since January.

The digest’s methodology notes say the policy rate is set on a principle of positivity against year-on-year inflation. On the BCC’s calculation, the real policy rate on the last date shown was minus 8.79 per cent. The committee’s 22 March increase from 8.25 to 9 per cent narrows that gap by 0.75 of a point but leaves it deeply negative.

Negative real rates mean that holding francs loses purchasing power every week, which pushes savers and firms into dollars. Dollarisation protects the saver and weakens the central bank’s grip on the price level.

The planning rule for the next quarter

Budget price increases at the pace of the largest city you sell in, and index contracts to the BCC series.

A retailer in Kinshasa working to 9.7 per cent a year would be wrong by Easter. The sensible rule is to plan around the local weekly figure, not the national forecast, and to renegotiate any fixed-price supply deal that runs beyond the second quarter.

Employers face the same arithmetic. Wages set in January lose roughly 8 per cent of their purchasing power in Kinshasa by the end of March. A mid-year adjustment clause, indexed to the BCC’s weekly index or the Kinshasa food series, costs less than the turnover that follows an unmanaged real wage cut.

Food importers and processors of cassava and flour should watch the tubers line. When it rises faster than the headline, margin is moving upstream, and contracts that fix the buying price for more than a month hand it to someone else.