Tanzania is faced with a number of challenges including economic ones. Among the key economic challenges has been taming inflation at single digits. The policy target has been taming it at five per cent. It has been a struggle to attain this mark. Of late however, inflation has gone below this policy goal to as low as 4.4 per cent in November 2017. This is an improvement from a 5.1 per cent rate experienced in October 2017. It is the lowest inflation rate since March of 2015. The 4.4 per cent rise in general price level this time around has been attributed to a slower rise in prices of key food items. These include meat, fish, vegetables, Irish potatoes and cassava. Available data suggest that inflation rate in Tanzania averaged 7.26 per cent from 1999 until 2017. An all time high rate of 19.80 per cent was reached in December of 2011 and a record low of 3.40 per cent in January of 2003. Among the key discussion issues is on whether the 4.4 per cent rate can be maintained. Inflation in Tanzania is basically due to structural than monetary factors. There are several main structural drivers of inflation in Tanzania as partly outlined below. Electricity Shortage and instability of electricity is inflationary. It drives high production costs that are then covered through hiking prices of goods and services. High electricity cost is known to have made captains and titans of the industry to reduce or stop production. The other option available to the captains of the industry has been to use alternative sources of power especially fuel-dependent generators. All of the above trigger inflation. The first two cause extra scarcity in the supply side of the economy thereby causing an increase in the general price level. The last results into increased cost of production which has to be reflected in price level. Taming inflation at 4.4 per cent or near that mark will therefore call for stable, quality and adequate electricity. Food supply Food is another major driver of inflation in Tanzania. This is because this expenditure item has a weight of about 47.8 per cent in the Mainland Consumer Price Index (CPI) and 57.4 per cent in Zanzibar’s. In case of food shortage, whatever the cause, prices will go up thereby hiking inflation above the 4.4 per cent. In case of drought for example, one is likely to miss bumper harvests which will translate into higher food prices across the board. This can also be the same in case of other variables that lead to less food in the market. These include but are not limited to severe floods, pests, post-harvest looses and inability of food items to move from surplus to scarcity areas for any reason. The impact of these is reduced food supply which may lead to the rise in general price level and therefore inability to tame inflation at 4.4 per cent. Addressing the food supply side issues therefore is very important in taming low inflation rates. Strength of the Shilling Strength of a country’s currency has close relationship with inflation rate. If the currency is weak and declining, it can contribute in high inflation rate.  This will be via the route of goods and services imports which (import and export) is normal for an open economy that transacts with the rest of the world. This is because one has to pay more in terms of Shillings for every good and service denominated in the appreciating foreign currencies. Partly that is why dollarization of the economy is inflationary.   Addressing this kind of inflation requires measures to strengthen the Shilling.  These include increasing the quantity and quality of exported goods and services and/or prices of the same, increasing incoming tourists, increasing remittances from Tanzanian sons and daughters in the Diaspora and increasing aid and investments inflows.  Equally important in strengthening the Shilling is the need to reduce import volumes and prices paid for the same. An artificial and therefore very short term and unsustainable option of strengthening the Shilling would be Central Bank intervention by way of supplying foreign currency in the money market. This may however put the foreign reserves into uncomfortable levels. Maintaining the 4.4 per cent inflation therefore calls for inter alia strengthening the Shilling. Imported inflation Part of the inflation in Tanzania is due to imports from inflation-ridden trade partners. These are trade partners that are experiencing high inflation rates.  Necessarily when goods and services are imported from such countries, they will be sold at higher than buying prices to cater for involved transaction costs and profit margins. Imported inflation can also be attributed to general global commodity prices including food prices. This too is an exogenous variable that Tanzania cannot control directly. Indirectly, this can be controlled by diversifying away from importing from inflation-ridden countries. But such alternative trade partners must exist.
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