1.24 Inflation in Sub-Saharan Africa, 2016–2024f

Inflation is expected to be contained in resource-rich countries, especially oil-rich countries, due to the appreciation of the domestic currency. factors behind the rally in inflation. Inflation is projected to average 18.5 percent this year, before contracting to 15.5 percent next year, followed by a further retreat to 13.5 percent a year later. The downward trajectory reflects decreasing commodity prices associated with the slowdown of the global economy, particularly China, and the effects of rate hikes.

Higher food and fuel inflation are the main drivers of the steep rise in headline inflation in South Africa. In general, the average inflation rate for 2022 is expected to hover above the 6-percent threshold at 6.8 percent and down within the central bank’s band (3-6 percent) at 5.7 percent in 2023 and settle just above the mid-point of the target range in 2024. Aggressive monetary policy, the decline in commodity prices, and weakness in the domestic demand will drag down inflation over the forecasting period.

Unlike Nigeria and South Africa, headline inflation in Angola is projected at 22.6 percent this year (down from 25.8 percent). The disinflation is expected to pick up speed next year, with price growth forecast to drop to 14.1 percent in 2023, and 8.9 percent in 2024. A similar pattern is expected in Zambia as inflation was down from 15 percent (January) to just above the upper bound of the official target range (6-8 percent) at 9.8 percent in August. This year’s predicted annual reading is 12.0 percent, and it is forecast to drop to around 10 percent in 2023/24.

The divergence across countries in the external and fiscal balance and debt dynamics is also present in the inflation rate. Inflation is expected to be contained in resource-rich countries, especially oil-rich countries where the impact of food and fuel inflation has been constrained, as is appreciation of the currency, which preceded the war in Ukraine and has persisted during the war. Median inflation is expected to start at a low level (5.3 percent) in 2022 and edge down gradually to 4.8 percent in FIGURE 1.24: Inflation in Sub-Saharan Africa, 2016–2024f (median) 2023 (figure 1.24). In Gabon, for example, starting at 3.5 9 percent (2022), inflation 8 will steadily decline to 3.2 7 and 2.5 percent in 2023 6 and 2024, respectively. By CPI, annual change 3 4 5 contrast, inflation will initially be elevated and proceed to decline slowly from 8 (2022) to 6.4 percent (2023) in 2 non-resource-rich countries. 1 The inflation dynamics of 0 non-resource rich countries 2016 2017 2018 2019 2020 2021 2022e 2023f 2024f are illustrated by WAEMU countries, while the inflation Oil exporting countries in SSA dynamics of resource-rich Source: World Bank staff projections. countries correspond to Note: Inflation is measured by percentage changes in the CPI using the World Bank Macro-Fiscal Model database. CPI = Consumer Price Index; e = estimate; f = forecast; SSA = Sub-Saharan Africa. CEMAC countries, where the majority of countries are

Sub-Saharan Africa Mineral and metal exporters in SSA Non-resource-rich countries in SSA

abundant in oil. The former group is expected to witness a fast disinflation process, starting from high inflation of 7.5 percent in 2022 and declining to 4.7 percent in 2023. Meanwhile, the latter is set to exhibit a slow disinflationary process, where inflation will contract to 4.1 percent in 2023 (down from a low 4.6 percent).

An additional factor that has contributed to rising inflation, especially in the Horn of Africa, is adverse weather conditions related to the worst drought in over four decades. The most affected countries include Ethiopia, Kenya, and Somalia. Ethiopia has been struggling with double-digit inflation since July 2017. Inflation increased sharply in 2021 from about 19.3 percent in January to 35.1 percent in December and remained steady at this level throughout 2022. Several factors contributed to the elevated inflation figures. They include the conflict in the northern region, rising global food and fuel prices, currency depreciation, and unfavorable weather conditions. Inflation is set to decline sharply to 25.6 percent in 2023 (from 33.7 percent in 2022) and again to 16.9 percent in 2024. In Kenya, inflation climbed from 5.4 percent at the beginning of the year to 8.5 percent in August, breaching the ceiling (7.5 percent) of the central bank target band. The same underlying factors driving inflation in Ethiopia are at play in Kenya. Similarly, a disinflationary process is also expected in Kenya, with inflation decreasing to 6.4 and 5.5 percent in 2023 and 2024, respectively.