THE Ministry of Finance and Economic Affairs, at long last, said it will curb inflation by its horn, addressing supply side constraints which are skyrocketing costs of production.
The Minister for Finance and Economic Affairs, Dr William Mgimwa, last week told the National Assembly, that the country was facing high inflation rate due to poor infrastructure and poor supply of food.
"Costs of production have been very high due to dependence on furnace oil and diesel to generate electricity," Dr Mgimwa said, "the completion of the gas pipeline will reduce this dependence a great deal."
The minister said the government was determined to tame inflation by reducing structural based costs because it is the major input expenses that fuel inflation.Due to what economists tamed as wrong policy which used monetary tools to reverse structural based consumer price index (CPI), the inflation has slightly dropped from 19.7 per cent in January to 18.4 per cent in May a drop of 1.3 percentage points in five months.
Mzumbe University's Dar es Salaam Business School Senior Economics Lecturer, Dr Honest Ngowi said recently that the desire to bring inflation down to single digit could not be successful under conditions set by the 2012/2013 budget."The country's inflation is structurally-based. This kind of inflation cannot be cured by applying monetary policy alone.
"The problem is that we wait for shortcomings and then embark on tackling them without having a clear strategy. It's like waiting for a disease to strike without first preparing the remedial measures," Dr Ngowi said.Applying wrong strategies on remedying galloping inflation cost the nation.
For instance last year when Kenya inflation hit almost 20 per cent, the Tanzania CPI was mere 12 per cent but today the trend is vice versa-Nairobi 12 per cent and Dar 18 per cent.This also has forced the Bank of Tanzania (BoT) to push back the inflation target for single digit to six months, saying the previous date was not realistic due to pressures from energy, food and fuel costs.
Previously, central bank and International Monetary Fund (IMF) projected that the inflation will hit single-digit at the end of June, this year, before rescheduling it to December. But, according to BoT's Monetary Policy Statement of June 2012, the target has been set to June 2013, predicting easing of pressure on global oil prices, stability of the shilling and food supply improvement.
BoT Director of Economic Policy and Research, Dr Joseph Masawe, told the 'Daily News' the bank had to invalidate the target to June, next year due to various challenges."The previous target was not realistic, compared to the real situation on the ground," Dr Masawe said, "we had to reverse the projections as signals were against the set date and unexpected."
The statement, however, cautions that considering the nature of inflation that has been experienced in the recent past, attainment of low inflation will depend not only on coordination of monetary and fiscal policies, but also deliberate policies that will address supply side challenges.
"The supply side challenges include increased capacity of food production and stabilisation of food supply," BoT said in the report.The government stated that the inflation is structural based almost over a year since economists raised their concerns and voices through various media channels, but were ignored by policy makers.
Inflation is crucial in paving the economic growth and political stabilisation of a country. Therefore maintaining it at an acceptable level is critical. In that vein the central bank fortnight ago adopted a flexible monetary policy-targeting interest rate instead of exchange rate.
The idea behind the BoT move is to improve management of liquidity and strengthen anti-inflationary measures, the International Monetary Fund (IMF) said.
IMF said sustained tightening of monetary policy in 2012/2013 was aimed at supporting efforts to lower, decrease in the rate of inflation, toward the authorities' single-digit objective.