- In terms of forecast, inflation is expected to be around 18 per cent at the end of 2022. The trend of price deceleration in the economy is expected to continue.
- However, according to bank of Angola the prolongation of the conflict in Eastern Europe and deceleration of the world economy with a negative impact on oil prices can be identified as possible risks.
The International Monetary Fund (IMF), in its report “World Economic Outlook update” of July 2022, signaled that inflation has been above expectations around the world, especially in the USA and in the main European economies, which has triggered more restrictive monetary policies.
Intensified unprecedented inflationary pressure was persistently driven by the rise of energy and food commodity prices.
In the second quarter, the annual headline and underlying inflation rates in USA stood at 9.1 per cent and 5.9 per cent. This was above expectations which were around 8.8 per cent and 5.7 per cent respectively. This was a result of the increase in energy prices by 41.6 per cent and food prices which increased by 10.4 per cent according to Bloomberg. This level represents the highest in the last four decades.
As for annual inflation in the European economies, it continues to be increasingly widespread and high at 8.6 per cent, marking the highest increase since the introduction of the single currency in the Zone. This trajectory has been justified essentially by the cost of energy. It should be noted that Germany has been the most affected member country, with an inflation of 8.2 per cent.
In Japan, the inflation rate stood at 2.5 per cent, above the usual levels, justified by the impacts of rising import costs and fuel prices, as well as food.
According to Bank of Angola, in sub-Saharan Africa, the challenging environment has been worsening annual inflation expectations for 2022, with initial IMF forecasts pointing to a rate of 12.2 per cent.
The reasons for the increase in inflation are common to most countries in this region that is poor supply of food on the domestic market, acceleration of food prices in the global market, and the effects of Covid-19.
However, contrary to all this, in the second quarter of 2022, inflation in Angola decelerated. This was mainly due to the slowdown in food inflation. This price evolution reflects the positive effects of the course of monetary policy, the appreciation of the kwanza and the stability of the supply of consumer goods in the economy.
In this vein, the Monetary Policy Committee (CPM), meeting on July 29, 2022, decided to:
- Maintain the Basic Interest Rate (BNA Rate) at 20 per cent,
- Reduce the interest rate on the Permanent Facility for Providing Liquidity from 25 per cent to 23 per cent,
- Maintain the Standing Liquidity Absorption Facility Interest rate at 15 per cent,
- Reduce the Compulsory Reserves Coefficient in national currency from 19 per cent to 17 per cent.
In terms of forecast, inflation is expected to be around 18 per cent at the end of 2022. The trend of price deceleration in the economy is expected to continue.
However, according to bank of Angola the prolongation of the conflict in Eastern Europe and deceleration of the world economy with a negative impact on oil prices can be identified as possible risks
The economic research office of Banco Fomento Angola (BFA) believes that inflation in the country decrease to 14 or 15 per cent by the end of the year, thus leaving room for further interest rate cuts.
“Regarding our outlook for the near future, despite a slight increase in monthly inflation, year-on-year inflation maintained a downward trajectory and our estimate indicates that it will end the year between 14 to 15 per cent. Therefore, we understand that there is still room for flexibility in monetary policy that the National Bank of Angola (BNA) can take advantage of,” read a commentary on the evolution of interest rates in Angola.
“The latest inflation data of 18.16 per cent confirms the trend we estimate for September, and for October our expectation is that year-on-year inflation will be between 16 and 16.80 per cent.”
The commentary further estimated that in 2023 there will be a slight acceleration in monthly inflation values compared to the second half of 2022, which could cause year-on-year inflation to stop falling somewhere between the first and second quarters of the year, and may even accelerate a little again, to levels around or above 15 per cent.
It added that this is due to a gradual but real depreciation of the kwanza, which will occur due to the decrease in oil production and the price of this raw material globally.
Meanwhile, the Organization of the Petroleum Exporting Countries (OPEC) cut its 2022 global oil demand growth forecast for a fifth time since April, citing mounting economic challenges including high inflation and rising interest rates.
A European Union ban on seaborne Russian crude, set to start on December 5, 2022, means that 1.1 million barrels per day (bpd) will need to be replaced, the International Energy Agency said.
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“The approaching EU embargoes on Russian crude and oil product imports and a ban on maritime services will add further pressure on global oil balances, and, in particular, on already exceptionally tight diesel markets,” the International Energy Agency said.
The IEA forecast that a gloomy economic outlook will put global oil use on track to contract by nearly a quarter million bpd in the fourth quarter of 2022 year on year, with demand growth slowing to 1.6 million bpd in 2023 from 2.1 million bpd this year.
In addition, a G7 plan, intended as an add-on to the EU embargo, will allow shipping services providers to help to export Russian oil, but only at enforced low prices.
Angola holds abundant untapped oil and gas resources estimated at 9 billion barrels of proven crude oil reserves and 11 trillion cubic feet of proven natural gas reserves. The petroleum industry is key and accounts for almost 75 per cent of the country’s revenues. It records an estimated 17,9 billion cubic feet of natural gas production from associated oil. Now the fall in oil prices surely has a direct relationship with economic performance. Simply put, Angola depends on oil prices and a fall in such means a decrease in revenues and exports.
