OUR MACRO OBSESSION

Our central Bank has taken its eye off the essential Ball of growth and is fixated with fighting inflation...and returning impressive macro economic data Headline Inflation Headline consumer price inflation which rose steadily to 18.4 percent in June, eased back to 17.9 percent in September, showing three (3) consecutive months of decline in the third quarter of the year. Price developments within the quarter saw monthly growth rates especially for the non-food category slow down relative to trends observed for the same period in 2007. Food prices also decelerated during the quarter mainly on account of improved food supply situation during the quarter. As a result, the average price increases of food in the third quarter improved relative to trends a year ago. Non-food prices also turned in better than a year earlier. Cumulatively for the year as a whole, inflation, by the end of the third quarter had registered an increase of 5.1 percentage points, moving from 12.8 percent at the beginning of the year to 17.9 percent at the end of September 2008. The increase in the year so far has been driven by both food and non-food prices. Food inflation which stood at 10.5 percent at the end of December 2007 increased to 17.9 percent by the end of September 2008. Non-food prices, on the other hand, also increased from 14.4 percent at the end of December 2007 to 18.5 percent by the end of September 2008. Details of the annual inflation rates within the various sectors of the economy for the periods September 2007 and September 2008 are reported in Table 2. Inflation rate varied across sectors. Some key sectors experienced sharp increases were the food sub-group, alcoholic beverages and tobacco, clothing and footwear, housing, and utilities, imported household goods and equipment, transportation costs, and educational costs. Inflation has turned in better than expected during the third quarter of the year with prospects of continued easing. At the last policy meeting, the Central Bank raised its key policy rate by 1 percentage point in an effort to dampen inflationary pressures and expectations. The response to the rate rise has been elastic with economy wide rates moving by more than a percentage point. Credit conditions tightened and crude oil prices have since retreated significantly and crude oil is trading at around US$60 per barrel (in the early weeks of November). The significant drop has occurred in the midst of the financial turmoil in the world economy with concerns about the depth and duration of recession in the global economy. At the July 2008 MPC meeting, the expectation was that crude oil prices would continue to rise and stabilize at around US$150 per barrel for 2008. That assumption combined with initial conditions at the time, including spiralling food and energy prices and a relatively faster pace in the depreciation of the