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Central Africa Cameroon Cameroon: Inflation Threats Loom Over Country
Central Africa Cameroon Cameroon: Inflation Threats Loom Over Country
Jun
29
2008
| Cameroon: Inflation Threats Loom Over Country |
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 The Post (Buea) An assessment of Standard Chartered Bank's, SCB, London-based Research Analyst, Kofi Bedu-Addo, has warned that threats of inflation loom over Cameroon. In its recent edition of the SCB's in-house and online journal christened On The Ground, Addo states that "after several years of declining inflation rates in Cameroon, the trend has abruptly reversed and inflation has already edged above the 3 percent level in 2008, from an average of 2 percent in 2007."He argues that despite the advantages of exchange rate appreciation, Cameroon has seen inflation creep up in 2008. "To counter against rising prices and household anger over shrinking disposable incomes, the authorities in March relaxed import duties, albeit temporarily, and increased public sector wages, safety net allowances and fuel subsidies," he noted. According to him, "Price controls on some food items have also been put in place. But while these actions might bring some short-term relief at best, the threat of inflation looms high over the horizon." Addo highlights three factors, which stand out in Cameroon's inflation dilemma. He notes that there is heavy dependency on road transport, which culminates to rising fuel prices, despite domestic fuel subsidies. "This simply translates into high transportation costs, which feed into the food supply mechanism and drive up food prices. Food represents the bulk of the consumer expenditure and it carries Cameroon's inflation basket, transport cost-induced price pressures, which play a key role in driving up inflation." The analyst also states that though Cameroon is sufficiently self-reliant in some domestic staples, the country's import of rice and wheat is significant. "But the continued rise in international market prices have gradually fed into the domestic food supply system, while eroding the import advantage accrued from the strength of the franc CFA zone," he added. Addo holds that the role of the local and regional factors; poor yields in Chad and Gabon, grain shortages in Nigeria's cattle rearing in the north and price controls in Cameroon, have contributed to driving up prices in the local markets. Consequently, shortages in domestically-produced food produce are surfacing and adding to the inflation threat." Another growing inflation concern, Addo highlighted, is government's expenditure on priority sectors and infrastructural development as well as donor and FDI financed investment projects that suggest still-buoyant growth and easy liquidity. On The Ground asserts that the dilemma for Cameroon, however, is made clear by the inability to effect adequate controls on inflation. From the highhandedness perceived from BEAC authorities, the in-house journal writes that the most recent (March/April 2008) Committee of Monetary Policy, CMP, meeting of the regional Central Bank, BEAC, ended with a decision to hold rates unchanged, despite acknowledging the increasing risk of inflation on the horizon, driven mainly by the rising costs of imported fuel and food as well as rising wage-increase demands. The CMP argued that the threat to growth was more imminent than that of inflation. In their view, a rare and ideal external environment has emerged for CEMAC economies to pursue stronger economic performance, in order to register growth above 6.0% for 2008 against the 4.1% recorded in 2007. Hence, while Cameroon has to accept the decision of the regional central bank, it remains powerless to reverse the inflation trend. The CMP notes that the region's institutions and transmission mechanisms are not fully developed, and poor credit uptake by consumers creates a disconnection between interest rate movements and real economy activity. Therefore, any decision to raise interest rates in order to combat inflation would be pointless. That inflation is on an upward trend is not disputed, but many have questioned the veracity of the official figures, believing inflation to be a lot higher. The violent protests of February, blamed partly on political issues as well as the combination of rising prices and shrinking disposable income of households, attest to this view. But the rise in inflation is not restricted to Cameroon alone. Protests, particularly over rising food prices, have already been registered in several Sub Saharan African countries in 2008, reflecting the growing erosion of disposable incomes. Set as favorite Bookmark
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