Standard Bank: Hike in electricity tariffs in Zambia will raise inflation rate to 15.9%

Standard Bank says the increase in electricity tariffs in Zambia is expected to raise the inflation rate in the country.

According to a report by Standard Bank on Friday, the country’s 2024 year-end inflation is expected to rise from 15.1 percent year-on-year to 15.9 percent.

“Recent increases in regulated electricity prices lead us to raise our 2024 year-end inflation forecast from 15.1% y/y to 15.9% y/y, while the disappointing Q2:24 real GDP growth outturn leads us to downgrade our growth forecast for 2024 from 2.5% y/y to 1.5% y/y,” the report reads.

On October 10, Zambia’s Energy Regulation Board (ERB) approved an emergency electricity tariff hike, to be implemented by Zesco Limited, the national utility, from November 1, 2024, to January 31, 2025.

Standard Bank said the increase is expected to raise about $15 million per month to fund “approximately 800MW of power imports to alleviate loadshedding and its negative impact on growth”.

“After this three-month period, these emergency tariffs will be re-evaluated to determine if further adjustments may be necessary. new tariffs are staggered based on usage,” the bank said.

“Low-income users, which comprise 56% of customers, will see a 15% average decline in tariffs per kWh of usage, while high-volume users will see increases of up to 162 percent.

“Weighted by number of customers per usage category, we estimate an average increase in electricity prices of 36%, which leads to an approximate 82 bps y/y increase to our overall inflation forecasts from November 2024 to January 2025.”

According to the report, even though the new tariff schedule was presented as temporary, the current electricity availability crisis might create an appetite for change.

Standard Bank said it might serve as a basis for a revised multi-year tariff trajectory, which would “have inflationary implications beyond the next three months”.